Q4 2022 Teck Resources Ltd Earnings Call
Ladies and gentlemen, thank you for standing by welcome to Teck'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.
Joining the question queue Press Star then one on your Touchtone phone should anyone need assistance during the conference call. They may signal, an operator by pressing Star then zero on their telephone.
This conference call is being recorded Tuesday February 21st 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.
Thanks, Ariel and good morning, or good afternoon, everyone. Thanks for joining us for Teck's fourth quarter 2022 conference call. Please.
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 statements. Please refer to slide two for the assumptions underlying our forward looking statements. In addition, we will reference various non-GAAP measures throughout this call <unk>.
Nations and reconciliations regarding these measures can be found in our MD&A.
And the latest press release on our website.
Now we know there is a great deal to Digest. This morning, we've got four issued four press releases, which I shouldn't have.
The first on the spin off it was still making poor business.
Second on the Sunset 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 is a copy of our presentation to go with the releases. It do not have all five documents. They are available on our website www dot <unk> dot com slash separation.
So there's a lot of time to discuss the strategic announcements we issued this morning, Jonathan Pryce, our CEO will begin today's call with a brief overview of the fourth quarter results will then shift to the focus of the three strategic announcements and the separation of <unk> into two independent publicly listed companies.
Related transactions with our steelmaking coal joint venture partners and major customers nipple, Adam Pasco and the six year Sunset protects our 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.
Thank you Fraser and good morning, everyone.
Starting on slide five we are pleased to have achieved several financial records.
Including a record nine 6 billion and adjusted EBITDA.
This was driven by strong commodity prices, particularly steel, making coal, which reached new heights during the year.
Each of our business units made substantial contributions to <unk>.
2022.
In the fourth quarter, the resilience of our team has demonstrated.
That's really manage through severe winter conditions and short term production challenges specifically in.
Highland Valley copper and trial.
However, we did fall short of consensus analyst estimates for fourth quarter.
Our adjusted EBITDA and EPS.
Our instruments driven by lower than consensus.
Which was partly because of the extended maintenance activities at brio during all that higher than normal operating expenses.
The timing of the rebel.
Like model.
Importantly, strong profitability enabled us to deliver record cash returns to watch out for us in 2022.
Including one 4 billion in share buybacks and $532 million in dividends, while continuing to strengthen our balance sheet through the repayment of one 3 billion of debt during the year.
And we are adding to this with our announcement that the board has declared a dividend of 0.6 to $5.
<unk> share to be paid on March 30.
This consists of a base quarterly dividend.
Zero, one to $5 per share on a supplemental dividend of 50 cents per share.
In addition, the board has authorized up to $250 million buyback.
In total these returns to shareholders, including distribution of 40% to the proceeds from the sale of Fort Hills receive daily and as Bob in accordance with our capital allocation framework.
In aggregate these Richard Spring total approved for Ted.
But $2 4 billion since the start of 2022.
Now looking at slide six we made significant progress against each of the four pillars of our corporate growth strategy in 2022.
We advanced our flagship QB, two corporate growth projects, despite having big related productivity impacts and challenging weather subsurface conditions.
He is currently ramping up and we look forward to doubling our consolidated copper production when it reaches full capacity by the end of 'twenty 'twenty right.
We also advanced the path of value for our industry, leading corporate growth pipeline joint partnerships that Nicolas de Mexico.
You range call it nipple in Minnesota.
I will come back to QB, two and all progressing public Reits at just about.
As I mentioned earlier, we closed the sale of February .
From the energy business provides a step change towards the rebalancing of our portfolio and low cost.
And we continue to profit growth cash returns to shareholders as demonstrated by our record cash flow.
'twenty two.
As expected <unk> 'twenty, yet, we have $8 2 billion liquidity, including $2 $8 billion of cash.
We also made significant progress against our sustainability goals during the year.
We secured 100% clean renewable power at QB to 'twenty to 'twenty five.
I'm, especially proud that we recorded the lowest ever quite potential incident frequency rate last year.
Full details of our performance will be in 2022 sustainability report, which will be released on March six states.
Now coming back to our progress on slide seven.
Our priority for 2023 will be the ramp up of <unk>.
We are in commissioning one at the concentrate yet at making final preparations to feeding ore to the mill.
Construction and commissioning are progressing across all areas of the project.
<unk> is essentially complete and the pipelines binding areas.
We expect Q2 to reach full capacity by the end of 2020.
Our capex guidance for the project remains unchanged from previous disclosure.
We expect QB copper production of 150 to 180000 tons in 2012 rate increasing to a range of 295 to 315.
<unk>.
Right.
Yes.
It is important to note that recent changes to Ifr S will impact unit costs Q2. This year we.
We are now required to recognize sales proceeds and related costs associated with the product. So during the ramp up in commissioning phase through earnings rather than capitalizing these events.
Once <unk> is at full capacity, we expect average net cash unit costs at U S $1 40 to $1 60.
Turning to slide eight we are also making meaningful progress on other projects in our industry leading pipeline.
We initiated a feasibility study at San Nicolas last year and expect completion in early 2024.
We are targeting submission of <unk> in the first half of this year.
Transaction with Agnico Eagle is expected to close in the second quarter of 2023.
We are continuing to advance the feasibility study for QB mill expansion.
Presenting a throughput increase of approximately 50% at QB.
Yeah.
<unk> was submitted to the Chilean regulator in early 2023 are the feasibility study is expected to be completed later this year.
And so for now we successfully completed a comprehensive public participation session and responded to the observations last year we.
We are expecting receipt of the <unk>.
Yeah.
First off.
And just lastly, we closed the new range copper nickel LLC transaction transaction with playback to jointly advance, but north at Massawa.
At Galore Creek.
<unk> of the pre feasibility study is targeted for the second half of the year.
Overall, our progress in 2022 positions us well for a very exciting next chapter.
So with that we'd like to move from the fourth quarter results and discuss the transaction, we announced today to spin off tax steelmaking coal business to shareholders and the creation of two world class independent companies.
So I think it was slide 10. This is a significant and exciting day for our company our shareholders and our people as.
As we take a major step forward to unlock value protects shareholders by establishing a path to separate our steelmaking coal base metals businesses.
As independent companies technical body resources or <unk>.
Well have simplified portfolios, allowing for heightened strategic and financial focus and the ability to pursue their own tailored capital allocation strategies.
We are confident this plan positions both companies for greater success, all supporting a sustainable future for the benefit of our employees communities and indigenous peoples and the areas where we operate.
Importantly, this separation will provide investors with choice for allocating their portfolios between two businesses commodities with unique fundamentals and value propositions.
We will realize the full potential of tech metals as a premiere growth oriented for Jason or a critical baffles essential for the energy transition.
E V O O will be a pure play high margin steelmaking coal producer.
<unk> will retain a significant portion of the steelmaking coal cash flows during a transition period to fund that off of drugs.
And current with the separation, we announced agreements to have our steelmaking coal joint venture partners and major customers to exchange that minority interest in the albumin Greenhill operations.
And you'd be up.
Notably Nippon Steel's $1 billion cash investments employees, and $11 5 billion enterprise value for our steelmaking coal assets.
Lastly, we also announced today a sunset a dual class share structure, which will both noise tech metal governance structure.
Now turning to slide 11.
I want to provide some context on the rationale for this transaction our wojciech he's taking a step net.
We recognize that the investment landscape has changed over the last 10 to 15 years.
Previously broad based demand across all commodities to support global development drove investor preferences for mine as we identified strategies.
So we're often rewarded with premium valuations.
In recent years.
That's the basis for base metals in steelmaking coal businesses have become increasingly divergent.
This proposed separation in response to that changing landscape.
It will allow investors to optimize their exposures to reach a base metal and steel, making coal through the creation of two world class pure play companies with compelling but different value propositions.
Pulp is critical role in electrification and the energy transition will drive continued demand growth and premium valuations.
High quality steelmaking coal will remain in essentially.
Steel production necessary won't be cannibalization infrastructure over the long term.
Turning to slide 12.
Following the separation Teck resources will become tech metals.
Premiere growth oriented base metals company.
Metals is focused on corporate growth.
And we are well positioned to capitalize on the strong demand generated by the accelerating transition to a low carbon economy.
Foundation of our portfolio is a high quality low cost long life operations, which are located in well established mining jurisdictions in the Americas.
And we have significant growth potential and resource optionality through our industry, leading pipeline of copper development projects and kit by QB two.
With the ramp up of <unk>. This year, we expect copper production to double in the near term.
And the bus long life deposit for broader blanket can support multiple expansions.
We currently have a little over 8 billion tons of reserves and resources Cubie at the ore body is I've been in multiple directions to further potential increases.
Beyond <unk>, we have an attractive suite of additional projects diversified by geography and scale and trying to develop.
The potential to add more than one 5 million tons of annual copper equivalent production wildcard portfolio.
Tech methods have the potential to become one of the top 10 copper producers in the world.
Importantly, cash flow from the transition capital structure provides tech metals, we've continued funding and make prudent investments in growth.
Through disciplined returns to our shareholders and while maintaining our financial resilience.
This transaction will unlock the full potential of our industry, leading portfolio, which is significantly undervalued relative to our peers.
Turning to slide 13.
Edr will be a pure play world class Canadian Steelmaking coal company high quality long life assets that are high margin operations focused on long term cash generation.
And cash returns to shareholders.
The existing I'll, probably operating team will continue to lead the all uninsured continue with the operating principles and responsible environmental and social stewardship.
Team will be led by President and CEO Robin Charlottesville, who is currently <unk> senior Vice president of coal.
EBITDA without full producing steelmaking coal operations in the Elk Valley in British Columbia, and the recently expanded.
At Neptune terminals in North Vancouver.
It's high quality low emissions hard coking coal product is sought after by the world's largest steel license as they work to reduce their own emissions.
This is demonstrated by the agreements they won't steal with Posco via an extra day.
A significant participation by two of our major customers emphasizing the critical importance of high quality steelmaking coal.
As I mentioned earlier, the $1 billion investment by default steel implies an enterprise value of approximately $11 5 billion further.
They can be the our value proposition.
Importantly, underpinned by its extensive reserve base with over 30 years of reserve life Edr has significant equity value accretion potential at the transition cable structure is pegged as shown in the graph at the bottom right.
Now turning to details of the transaction on slide 14.
At the highest level of separation is of Spittle Tech steelmaking coal business to shell.
<unk> metals will retain substantial access to steelmaking coal cash flows in the form of a royalty and preferred shares.
The separation will be implemented by way of the distribution of the equity common shares to be up two existing tech shelves.
Shareholders will receive one common share.
For every 10 shares of Teck resources together with a share of a total cash distributions of $200 million.
Shareholders can elect to maximize the amount of cash or E. B all common shares they received subject to proration through a Dutch auction process.
In consideration for the transfer of the steelmaking coal assets do Edr Edr will issue with gross revenue royalty and preferred sheds together called the transition in capital structure.
Which tech metals maintained at 87, 5% interest.
Good that in exchange for that minority interest in the <unk> and Green Hills operations.
An additional one 1 billion cash investment by Nippon steel.
Nippon steel of Posco without a combined 12, 5% interest in both E. B, all common shares and the transition to capital structure.
Payable quarterly royalty will be based on steelmaking coal revenue generally equivalents, 90% free cash flow.
Payable until the later all aggregated to about a $7 billion in royalty payments can be made.
Our year end 2020, yet.
Edr will also issued four $4 billion of redeemable preference shares with a six 5% cumulative dividend.
Heck metals will continue to be listed on the Toronto and New York Stock Exchange's Edr has applied for listing on the TSA.
I'm looking at the planned capital structure for EV or in both eat that on slide 15.
Cash flow from operations will be prioritized to be used 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.
Well the Tcs is in place.
Percent of free cash flow will go to the royalty.
Sure redemptions once.
Once the Tcs is extinguished 100% of free cash flow was retained by E V O O.
The remaining free cash flow will go towards an initial base dividend of <unk> 20 per share and supplemental shareholder returns by dealt with at least 50% of the free cash flow off the Tcs payments.
Importantly, EBITDA will be well capitalized at launch with $1 billion in cash and working capital and no debt.
Metals is expected to retain investment grade credit ratings based on preliminary indications.
Slide 16 provides detail on the sensitivity of the proceeds from the transition capital structure changes in steelmaking coal prices.
The Tcs has leveraged the hard coking coal prices to provide flexibility and resiliency E V O. While also providing battles with continued access to steelmaking coal cash flows during the transition period.
This is one of our tech metals to prudently invest in our industry, leading corporate Greg portfolio, while delivering cash returns to shareholders.
Tcs is forecast to provide tech battles with not less at $12 billion pre tax proceeds over time.
Because of the leverage the hard coking coal prices are higher price environment with both accelerate payments and provide upside participation to protect battled through the royalty.
Assuming a U S $185 per ton Volta benchmark hard coking coal price in our Canadian U S dollar exchange rate at what city.
<unk> would be fully paid approximately 11 years.
It's long term prices stayed at current spot levels.
Yes 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.
Turning to slide 17.
Another important step in times of the day is the proposed six years sunset multiple voting rights attached to the class a shares in tech.
This one bulk buys tech battle governance, I'd provide a simplified and competitive capital structure.
On the effective date, each tech class a common share will be exchanged for one U class a common share at 0.67 of our class B subordinate voting share.
Terms of the new class a common shares will provide that on the six out of the history 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 the additional class B shares issued on the effective date of the amendment represents approximately 1% dilution.
The separation transaction and the dual class amendment of subjects, 66% to 30% approval by class, a and class b shareholders voting separately like Clos.
In addition, the deal close amendment is subject to approval by a majority of class b shareholders other than semi can be mining company sumitomo metal mining and dumped to cable.
Those folks are expected to be held a text annual and special meeting of shareholders on or about April 26 2023.
In addition to tech shareholder and court approvals the separation is subject to customary conditions, including approval by the TSA.
We expect that this transaction will be completed in the second quarter of 2023 at which time check metals and he be off we began operating as separate companies.
So before we turn to Q&A I want to start where I began.
We could not be more excited about this transformational transaction 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 organizations, allowing the two entities to pursue segment growth and capital allocation strategies to realize their full potential.
It will enable metals to unlock the value of our world class copper growth portfolio and capitalize on the opportunities created by the energy transition.
Goodbye steelmaking coal cash flows during the transition period.
And position <unk> as a pure play high margin steelmaking coal project set with exposure to strong steel fundamentals.
Significant equity value appreciation potential.
The potential is the transitional capital structure is paid.
The separation will provide investors with the flexibility to optimize portfolio allocation between base metal from steelmaking coal with each company, providing exposure to different commodity fundamentals capital return policies and value propositions.
Further the dual class sunset bulk buys tech baffles governance structure.
As we move forward, our purpose and values, which are deeply embedding will ensure health and safety and sustainability are at the forefront of everything we do across both businesses.
This includes our unwavering commitments to become net zero by 2050 and agent policies by 'twenty six.
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 to.
To join the question queue. Please press Star then one on your Touchtone telephone you'll 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 speaker phone. Please ensure you lift the handset before pressing any keys.
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The first question comes from our erstwhile cause out of Scotiabank. Please go ahead.
Hi, good morning, and congratulations on the 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 why ultimately the spin out whats the chosen.
Avenue to separate the business versus just an outright sale of the coal business.
Yeah, all right. Thanks very much for your question.
Its something thats been under consideration by the board of directors of attack for a number of years now and we've worked very hard through a range of alternatives to get to this point we were announcing today.
Ultimately, we decided that a separation bar a spinout of steelmaking coal business to tech shareholders, what's the optimal maintenance breaking these two great companies take Mastec medical resources.
It's set both companies up for success.
Metals of course this allows us to continue to use cash flows from the coal business to fund our unrivaled portfolio.
Continue to develop and deliver the copper, but the world is going to need for electrification and decarbonization.
In the case of the steelmaking coal business or outside of your resources.
That will be a world class Standalone company with high margins.
Long life reserves, and producing a product, but the world needs for decades to come to produce steel required for the infrastructure for decarbonization.
Ultimately the creation of these two separate companies.
Leif will give investors choice to allocate funds within their portfolios.
On their priorities and based on the different strategies and capital allocation.
Frameworks that these companies will have going forward.
It's been an extensive process as you would imagine are conducted over an extended period of time, we go out on the table, but ultimately the board and the management team concluded that this would be ultimately.
Thank you and as a follow up on your slide 16 that talks about the illustrative sensitivities to the proceeds.
How should we think about the sort of your opex and Capex assumptions.
Moving forward here does this assume kind of 'twenty three guidance levels for both stay flattish moving forward or does this assume kind of a 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.
T T C S payment on the base case.
Yeah, I think what you'll see in that already said I'll start with referencing the coal prices you said that you know they they reflect the nature of consensus probably because over the coming years and then we make a bolt on to our assumption of U S $185 per ton for hard coking coal.
It would be fair to say that the operating cost somewhat fallout of that profile in the near years. They reflect elevated costs as a result, the inflationary environment that we're working at it and as we said you know Fortunately, we expect elevated costs to retain to remain through 2023 and of course, you know potentially into 'twenty two.
Full but beyond that we would expect to see some revision and reduction in unit cost in the steelmaking coal business, which of course is it going to be required if we're going to see the sort of revision in coal prices that we highlighted in the deck from a capital expenditure perspective, we do expect you know elevated levels.
To remain true through the current year and in the near years in particular as we continued to make heavy investments in water management Baltic treatments in the coal business however beyond that.
The investments in most of management's treatment should decline and we'd expect to see our sustaining capital.
Back towards historical levels. So that's a long answer I know, but we do see some continued elevated unit cost and capital cost and the D is but we do expect to see something of a revision I hate to use 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 seven to 11 years on the P. C. S. Six years on the.
So on the cost savings.
It was was there some reason you push them out that long or is it just maximizing the opportunity.
So starting with the the Tcs Greg you know what we've tried to when she theory is getting a balance between continuing to fund our growth portfolio for tank battles.
Of course to realize the full value of the E V O O business.
Against the desire ultimately you can separate the two companies and that's the balance that I think struck well through the timelines here of course as you know ultimately that will be a function of the predominantly hard coking coal prices, but also the underlying cash flow generation of the E V O O business.
With respect to the Sunset provision all the class a shares ultimately that was the subject of a negotiation between the the majority class a shareholders and a special committee.
Exported.
At this.
We think that the <unk> Sunset provides tech.
<unk> metals with a with good cover to continue to deliver all of our all to all our unrivaled pipeline, but ultimately provides a fixed timeline for a vision to a ball cap.
Capital governance structure.
And secondarily, both these transactions require a vote from shareholders that cause either one of the most dependent on the other ones that go ahead independently of each other.
The COVID-19.
No.
Yeah, there's a bogey for the separation with Greg and for the changes to the asos share structures are independent of one another.
So one would go ahead if the other is not approved.
That's correct yes.
Thank you.
Our next question comes from Lucas pipes of B Riley Securities. Please go ahead.
Thank you very much and good morning, everyone.
My first question is on the capital return profile. The Decrementals you mentioned discipline, how do you envision balancing capital returns.
I'm Adam Smith.
Higher to grow that business. So I. Thank you very much.
Yeah. Thanks for the question Lucas and essentially the approach to capital allocation will remain unchanged.
Tech metals as it has been in Texas for the last number of years and we will continue to advance.
Corporate broker pipeline and we will continue to invest in the development corporate projects throughout the Americas.
However, we will continue to focus on balancing investments in growth against strong cash returns to shareholders.
Well it is maintaining the foundation of a strong balance sheet.
That's something we did very well through 2022, where we invested.
Significant capital in QB, two and bringing that to once completions well ultimately approving.
And I'm, saying around $2 $4 billion of returns to shareholders through a combination of dividends buybacks and also buying back one $3 billion of all that ultimately proved me 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 returns to shareholders by way of dividends buybacks and beyond that the balance 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.
Oh.
That's very helpful. Thank you and then a quick follow up Nippon steel in Pasco, respectively will control, Ken and two 5% of both the E V R and T C S.
The separation is that right.
Yeah, that's absolutely correct Lucas I look we couldn't be more excited by the investments that we've had here from Nippon steel.
<unk> they are both world class steelmakers, they have been long term customers of our business. It's right to continue to have their involvement in the business yet in particular, the you know the $1 billion of cash received from Nepal, and I think he's such a strong endorsement of both quality and valuation of E V O O.
Equivalent to an enterprise value of $11 $5 billion, but also the long term outlook for the steelmaking coal business. So as I said, we couldn't be happier with the investments that we've received.
Our next question comes from Brian Macarthur of Raymond James. Please go ahead.
Good morning, and thank you for taking my questions can.
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 is a sunset in.
2028, but what happens if.
You know COO.
<unk> business has a really tough year you go down to the 250, So you don't kick out Ed easing for the quarter and.
Then the coal price goes up a lot is there a catch up mechanism to get back that cash flow in the quarter, you mess or do you just plain.
Lose it because he tap out at the low end.
That makes sense to you if you see what I'm, saying.
Well I wasn't quite sure Brian about the 250 that you were referencing here, but essentially that there wouldn't be a catch up in the quarter.
The you know the cash flows will flow to the Tcs and detect metal when when available Oh, sorry, you mean, the cash balance and our cash balance the 250% goes to 150 right then technically for a quarter I guess, you know I assume you pay the prep, but you don't pay the royalty and the next quarter your cash balance goes up because the coal price.
Volatile do you actually make up that loss payment I guess, what my question is where does it just yeah.
You know the time clock keeps we're moving to 2028 and then.
Or the 7 billion and you either make it or you don't make it.
Yeah. So let me you would still operates on the $7 billion of loyalty and the $4 $4 billion of breaths, yeah. They would be unchanged I guess in the scenario you are painting. It will just take slightly longer to sort of recover those cash flows.
Once the once the coal business has recovered its cash position back to $250 million. So so there's no permanent.
Loss of recovery of cash flow protect Matt hope it really just extensions erosion.
Perfect. Thank you and the second question, just just to be very clear on the a shares.
You're spending as these new shares in cool they don't they don't have A's and B's right. There just common shares in the new vehicle. So theres no protective rights there.
That's exactly right. They will just be a single class of common shares B L.
Thank you very much I'll get back in line.
Thanks, Brian .
Our next question comes from Camino Tanners of Wolfe Research. Please go ahead.
Hey, good morning, everyone. Thanks for the detail.
I'm just trying to process it all fell 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 fake why just Toronto listed and you know is there any price embedded in the $11 5 billion or is that simply and that's a key.
Cleveland from the amount that was paid by or that will be paid by Nippon steel.
Yeah. Thanks, Thanks for the questions.
Is just a straight spin at the coal business here, we don't have plans for further investment into that business and we don't have plans for further opex associated with that business as I said, we're incredibly excited by the investments we have secured for the bulk of posco, but nothing nothing in the woods.
At this point in time.
The $11 5 billion enterprise value of course reflects the Vulcan I'd look for the business Batesville a.
Typical production operating cost and capital assumptions and of course, there is anybody out.
Steelmaking coal price.
As well, we think it's absolutely fair valuation.
Fitness.
Very happy to see Nippon steel can fill that with the one benefit of our investments at the 9%.
Okay. Thanks, and just on that last question just wondering if it would be just trying to listed or why that decision and the second question was just on QB two just to clarify it sounds like Theres really not any update on QB two from when we heard from you last in terms of aside from the comment on that day accounting for costs.
There anything we're missing or is it exactly the same guidance as to before in terms of volumes and cadence.
Yeah, sorry, just yeah, sorry, I missed your question all the T. S X, yes, ETR will be listed on the T. S X I believe.
Behind that that's just what we've elected to hop out.
Canadian company.
And I have a whole lot of finding company.
Well on the TSA with respect to QB two that's in very good shape. We are in touching distance. It is production I'm going to hand over to Red Conger briefly you can just give you a slightly more up they'll update a detailed update on the status and when that production would be expected.
Yes, good morning, two minute Oh, we're really in an exciting part of the project right now where we're commissioning all of the equipment from the C store all the way up to the concentrator at elevation.
We're really happy with the desalinization plant and how that's running and we're pushing water up the hill now to the concentrate or at the concentrator. We've we've run all of the motors the Big Mills, So a lot of those pieces in <unk>.
Commissioning require a lengthy rooms of 812 hours.
System Lee we've we've done all of those successfully there were a couple of weeks.
Items with a key conveyor belts, where one when we're re splicing.
Right now, where we werent happy with God configuration, and another conveyor where were.
Doing a little extra work on potentially mechanism. So it's ready to go we've already crushed rock and and the primary crusher and you know it's imminent pushing rock through through those grinding mills and getting all the rest of the equipment going so very very exciting time for us on that.
Roger.
Okay, great. Thank you.
Our next question comes from Emily Cheng of Goldman Sachs. Please go ahead.
Good morning, Jonathan and Thanks for taking my question. My question is just around the tech metals business. It sounds like that would give me a lot of a conflict right. There in the portfolio, but how are you thinking about the zinc I thought that at some point become noncore or Cisco or investment that I had.
Hi, everybody. Thanks, very much for that question no zinc remains absolutely cool the tech metals going forward is as it is today in the portfolio what.
What we've said about zinc. It is we don't expect that to be an area of growth.
Same extent, we focused on copper but.
Certainly we'd like to maintain our current.
Current levels of production there or thereabouts.
In fact that book going forward.
Obviously, we have a large position in dominion, which we expect to continue to operate for a long time Red dog as we've said before the cars open top by comes towards the end of life and nearly 2030 then.
Working now on the extensions beyond that which would involve is going underground at red dog, but that is something that.
And it looks very attractive given the quality of the resources that we have that and we would fully intend to maintain the Ah trial in smelting and refining operations that we have so we will remain very much a core business for us.
I'd say, a very strong cash generative business for US you know people would take it there's about $1 billion of EBITDA already here and it doesn't consume a great deal of capital. So it's a it's a solid contribute yet to the group and will continue to be a cool about second half.
That makes sense and a follow up is just around the dual class share structure collapse discussion that during this period does this mean what does this mean for somebody like us.
Class Asia holidays does this essentially preclude tuck from any M&A during this period.
So there will be no change to the to the voting rights until the end of the six year period. So as it is today.
Alright, thank you.
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 the way that the class a shares are being converted so effectively each class shares being converted plus they're getting 0.67%.
Our class B.
And yeah.
I'd love to hear your views on how that kind of valuation gets arrived at.
Yeah look ultimately a loss that was a negotiation between the majority holders of the class a shares and the special Committee of the Board I'm you know it reflects consideration for soluble voting rights essentially that will be for golf them through the sunset.
But importantly, this represents 71% dilution of our tech sheds overall, so in that context, we think that the devaluation struck here benchmark very well against precedent.
Okay. That's that's fair I, obviously understand that you can't say a lot there and I also wanted to follow up on QB, two and just get an idea for how the ramp up to first concentrate production might look.
So.
V from from when you feed first ore to the mill to when you have first concentrate like.
Like how long will it take for that to flow through the process.
Oh, sorry, the timing from first ore to the mill to first concentrate.
Yeah exactly thank you.
Red do you want to add a bit of color to that.
Yeah, well so no.
Think about the first half of this year as the as the ramp up.
Period end.
As we get towards the end of the year.
The facility will be running at full speed and you know that garden bring guidance range that we provided.
Would it help copper production.
Commensurate with.
Okay. So maybe I asked another way do you expect to.
Produce concentrate in Q1.
Okay.
Yeah, well, we'll make first copper in Q1 for sure.
Okay, Okay fantastic thanks for clearing that up.
Our next question comes from Carlos de Alba of Morgan Stanley . Please go ahead.
Yes. Thank you good morning, Jonathan and team just on the transaction a E V are even considering the potential environmental and remediation consideration so bad business.
Does the authorities in Canada.
You have to approve the transaction or have you discussed with them.
Do you see the spin off of plans so that they are aware and there's not no potential issues down the road.
And the second question is just to clarify the E V I will start with.
No debt right so basically.
Free going forward.
Yeah. So I'll just address the second question first you're exactly right E V O be debt free.
I'm talking just about the environmental and external approvals you asked about there there are no required approvals.
The separation.
There is an approval required but the T S expert with a lifting but aside from on Calvert approval, we don't require or anything regulators or government. We have engaged with both provincial and federal government regarding this transaction that we've also critically engaged with the the indigenous groups who are.
Our presence in the Elk Valley and been very much involved with our steelmaking coal business that we don't require approval from them, but of course, we will continue to maintain very strong and productive relationships with them going forward.
Alright, great. Thank you.
Our next question comes from Dalton Barreto of Canaccord. Please go ahead.
Thanks, Good morning, Jonathan and team and congratulations.
My first question on the proceeds from E V or its attack metals. Jonathan can you tell me. If there are any restrictions on the use of proceeds at tech metals or do a full launch into how those spots.
Oh, Yeah, Hi, Dalton. Thanks for the question no no restriction at all of the use of proceeds the technicals receipts from E V O O as mentioned previously our focus will be to deploy those.
To assist with the growth of a couple of portfolio, while balancing returns to shareholders and maintaining a strong balance sheet. So we will use those proceeds in a manner that's very consistent.
Consistent with our strategy.
Okay, and then when you were running <unk> metals. It does the strategy remains the same or will you look to be more aggressive on things like M&A to accelerate the growth profile.
That'd be the strategy will remain the same don't suddenly the focus is all on a couple of drugs and to focus the bulk of our growth is through our organic pipeline.
Pipeline of projects, a wall streets, adding cash to shareholders. So no change in that respect and of course, you know we maintain a for a number of years as being a key part of our strategy, which is to use cash flows from the steelmaking coal business to support that capital allocation strategy.
Okay. Thanks, and then maybe one last one.
Your your harvesting call it 90% of the free cash flow back into tech metals from E. B R. Two tech metals doesn't really look very different business today. When you consider what the sponsors are coming from so what kind of gives you comfort that you will re rate on the back of this.
Just one point of clarification, there well, 90% of the free cash flow probably be all it goes through the transition capital structure 87, 5%, it's not going to tack baffles and 12, 5% goes to Nippon and Posco, just just a clarification there.
All creating two entirely separate businesses here with separate listings with separate management teams.
Separate boards are we do recognize of course that you know through the the transition capital structure. They see as it's described a transition.
We'll go on for a number of years until we see a complete separation or financial independence Pulchritude companies and of course, we think you know what it is that there is that pay down does.
That will create value accretion or equity accretion for E. B, all and will increasingly have checks mental state isn't he can call the independent base metals company.
Thanks, Jonathan that's all for me.
Our next question comes from Chris left.
Jefferies. Please go ahead.
Thank you operator, thanks for taking my questions I have a couple of questions about change in control provisions I think I read somewhere that in the case of B V or in a change of control the <unk>.
The royalty payment that tech metals would receive would increase from 90% to 92 and a half per cent 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 tax ownership in E. B R E.
Sort of poison pill, there that would reduce the value to a potential buyer of Pac if he would it be acquired and then sorry. So the first question is around am I right about the change in control on E. D. R. And then secondly change of control.
On tech if that were to be acquired.
You're correct on both fronts Sydney assisting since there is a step up.
That's 92, 5% then that would be no indications.
Respect to any acquisition side.
<unk> affect that.
Okay. Thank you.
Our next question is follow up from a rest of welkin out of Scotiabank. Please go ahead.
Hi, Thanks for taking the follow up Jonathan just curious given the.
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 you know given now you've got a very clear focus on coal cash flow coming into the business to fund copper, whether we should anticipate that you may bring forward some of those internal copper project.
There's always somebody now I think you know in in one sense here, there's no real change to the strategy for tech metals, which is to develop a couple of drugs pipeline in this transaction to say it doesn't signal a change or an acceleration of that you know of course, we are always looking at the optimal pace of development.
The projects, we have in the portfolio and the optimal sequence of those projects recognizing that we we can't do everything at once.
As you know well do anything can be one of the one of the greatest restrictions in terms of in terms of the timing for development as I mentioned at the top of the call. You know we rent bumps that both studies out there and it's across a range about projects, yet and given you know the focus on critical minerals from from a number of governments around them.
It could be the permitting timelines all reduced somewhat but.
I mentioned.
Action in and of itself doesn't change.
<unk> because we've already been 30 focused office development projects in the portfolio.
That's perfect. Thanks, and can you just remind us what's your current plan for the timing of the <unk> mill expansion.
So we had submitted today.
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.
Actual for an approval or to keep the mill expansion in early 2024.
Great. Thank you so much.
Well.
Our next question comes from Alex Toronto of Stifel. Please go ahead.
A question for you on the Tech cool spin out E V or I know you mentioned that you expect tech metals to retain an investment grade credit rating, but how how do we think about the or how would you get the cash flows from that would be allocated to tech I'm just trying to think of in terms of EBITDA calculations and any covenants on your ratios that we could think of for Teck.
Going forward.
Yeah.
But oh, CFO Crystal and Crystal had to just talk a little bit about time does that cash flows a little crazy we have had a.
Received preliminary indications from.
Three credit rating agencies that cover us that Fitch Moodys and S&P that preliminary indications are that we will maintain our investment right now.
Team sports like Battle, but I'll, just let critical briefly explain how those cash flows can be tricky.
Hi, Alex Thanks for your question.
Just in the context of the treatment on our financial statements maybe not the most important place to start we will in tech metal deconsolidation of our interests in the coal business unit on closing of the transaction.
So in our unadjusted profit figures you won't see the results from the core business unit reflected there like given the recurring nature of these cash flows coming in to attack metals, we are planning to adjust our EBITDA for both the royalty and the crop share dividends and redemption. So so you should expect.
You see those coming through our adjusted EBITDA calculations as well as adjusted EPS and you could model it that way.
Yeah.
Okay, great. Thank you.
Right.
Yeah.
Our next question comes from Lucas pipes of B Riley Securities. Please go ahead.
Thank you very much all for me. Thank you for taking my follow up question.
That's my belief Nippon in Pasco and receiving rights to the cold snap in exchange for their prior interest how should we think about this.
This all equates thank you very much.
Yeah, So I would say, both and Ah Nip all the Costco with it being a joint venture partner.
That was wallet right.
Part of what's happened there is a conversion of those interests to their interests and equity in the transition.
Transmission capital structure here.
We'll retain them all.
Agreements are long term offtake agreements with E V. All I want to talk about the conventional centre for those contracts, but you know it's substantially similar to the sort of agreements that we thought that that is the path. So.
It can change that.
Alright, I appreciate it thank you and again best of luck.
Thanks Lucas.
Yeah.
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, just want to say that again lots to digest them I'm sure. There will be plenty of other questions. Please reach out to me or Helen or indeed anybody on the IR team will 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.
Yeah, Thanks, Fraser and thanks, everyone for joining the call today and for the good questions.
You know, we we attack couldn't be more excited about this transformational transaction that we've announced today, we believe it will unlock significant value for our shareholders, but we do believe that this transaction structure is the best way to separate and realize the full potential of both of these 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 are they season five locking the value with the world class public REIT 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 <unk> as a pure play Alibaba in steelmaking coal produce that exposed to strong long term fundamentals and we have the potential for strong equity value accretion.
Our capital structure has paid down critically the separation provides our investors like the ability to choose and optimize that portfolio allocation between bags battle.
So given that both companies provide exposure to different commodity fundamentals and capital return policies.
Finally of course, the deal with loss share Sunset, well Barton biotech battles governance structure. So with that thank you very much we look forward to following up this compensation would you be on this call.
And yet once again thanking very exciting dataset.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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