Q3 2023 Teck Resources Ltd Earnings Call
Right.
Ladies and gentlemen, thank you for standing by and welcome to Teck's third quarter 2023 earnings release Conference call.
Speaker 1: Ladies and gentlemen, thank you for standing by. Welcome to Tech's third quarter, 2023 earnings release conference call.
Speaker 1: At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.
At this time, all participants are in listen only mode.
Later, we will conduct a question answer session.
Speaker 1: To join the question queue, please press star, then one on your touch tone phone. Does anyone need assistance during the conference call? They may signal an operator by pressing star, then zero on their telephone.
To join the question queue. Please press Star then one on your Touchtone phone.
Anyone need assistance during the conference call, Dave You said no one operator by pressing Star then zero on your telephone.
Speaker 1: This conference is being recorded on Tuesday, October 24th, 2023.
This conference is being recorded on Tuesday October 24 2023.
Speaker 1: I would now turn the conference over to Fraser Phillips, Senior Vice President, Investor Relations, and Strategic Analysis. Please go ahead.
I would now like to turn the conference over to Fraser Phillips Senior Vice President Investor Relations and strategic analysis.
Please go ahead.
Speaker 2: Thanks, Charisse. Good morning, everyone. And thank you for joining us for Tech's third quarter 2023 Carpers call.
Thanks, Chris Good morning, everyone and thank you for joining us protect third quarter 2023 conference call. Please.
Speaker 2: 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 two for the assumptions underlying our forward looking statement.
Please note today's call contains forward looking statements various risks and uncertainties may cause actual results to vary.
<unk> does not assume the obligation to update any forward looking statements. Please refer to slide two for the assumptions underlying our forward looking statements.
Speaker 2: In addition, we will reference various non-GAAP measures throughout this call. Explanations and reconciliations regarding these measures can be found in our MD&A and the latest press release on our website.
In addition, no reference various non-GAAP measures throughout this call explanations and reconciliations regarding these measures can be found in our MD&A. The latest press release on our website.
Jonathan Pryce, our CEO will begin today's call with highlights from our third quarter results Crystal press dye, our CFO will follow with additional color on the quarter charter doesn't conclude today's session with a brief update on our value creation strategy before we open the lines to questions with that I'll turn the call over to Jonathan.
Speaker 2: Jonathan Price, our CEO , will begin today's call with highlights from our third quarter results. Crystal Press Die, our CFO , will follow the additional color on the quarter. Jonathan will conclude today's session with a brief update on our Galactic Creation Strategy before we open the lines to questions. With that, I'll turn the call.
Speaker 3: Thank you for either and good morning everyone. I'm speaking to you today from a key K in the tarot pack of region of northern Chile, where we're gathering this week to celebrate the opening of our flagship QB2 operations.
Thank you Fraser and good morning, everyone I'm speaking to you today from a key K in the Terra pocket region of Northern Chile, where we're gathering this week to celebrate the opening of our flagship QB two operation.
Speaker 3: This is a momentous event for Tech with Cravada Blanca as the cornerstone of our copper growth strategy. More on that later.
This is a momentous event protect with Karada Blanka is the cornerstone of our copper growth strategy more on that later.
Speaker 3: To start on slide four, our positive financial performance in the third quarter reflects continued strong pricing for copper and steel making coal. In addition to higher base metal sales voice.
So starting on slide four.
Positive financial performance in the third quarter reflects continued strong pricing for copper and steelmaking coal in addition to higher base metal sales volumes.
Speaker 3: Adjusted EBITDA of 1.2 billion reflects lower than expected steel making coal sales in the quarter and a localised tree a technical event at Highland Valley in August .
Adjusted EBITDAR of $1 2 billion reflects lower than expected steelmaking coal sales in the quarter and our localized geotechnical event at Highland Valley in August .
Speaker 3: During the quarter we made significant progress to unlock the value of our industry leading copper portfolio.
During the quarter, we made significant progress to unlock the value of our industry, leading copper portfolio.
Speaker 3: Our QB2 project continues to ramp up and is expected to achieve design throughput and recovery rates by year-end.
QB two project continues to ramp up and is expected to achieve design throughput and recovery rates by year end.
Speaker 3: The assets are performing well and we are pleased with the strong operational performance we have seen today.
The assets are performing well and we are pleased with the strong operational performance, we have seen to date.
Speaker 3: We have a line of sight to double our consolidated copper production when QB2 reaches full capacity.
We have a line of sight to double all consolidated copper production when QB two reaches full capacity and we continue to advance our actionable portfolio development options to position Teck for our next phase of copper growth.
Speaker 3: And we continue to advance our actionable portfolio development options to position tech for our next phase of copper growth.
Speaker 3: Importantly, we ended the quarter in a strong financial position, with $7 billion of liquidity, included $1.5 billion in cash.
Importantly, we ended the quarter in a strong financial position with $7 billion of liquidity included $1 $5 billion in cash.
Speaker 3: and we return $65 million to shareholders through the payment of our quarterly base dividend.
We returned $65 million to shareholders through the payment of our quarterly base dividend.
Speaker 3: In the third quarter we continue to make steady progress against our sustainability goal.
In the third quarter, we continued to make steady progress against our sustainability goals.
Speaker 3: We announced an agreement with Norden to reduce emissions in our steelmaking coal supply chain.
We announced an agreement with northern to reduce emissions in our steelmaking coal supply chain.
Speaker 3: The agreement is expected to reduce annual emissions from tech shipments handled by Northern by 25%.
The agreement is expected to reduce annual emissions from tech shipments handled by northern by 25%.
Speaker 3: and I reported high potential incident frequency remained low at a rate of 0.13. Now turning to...
On a reported high potential incident frequency remained low at a rate of 0.13.
Now turning to cubic to on slide five.
Speaker 3: We made solid progress on the ramp up during the quarter, and as I just mentioned, we're seeing strong asset performance with the QB2 plant performing well.
We made solid progress on the ramp up during the quarter and as I. Just mentioned, we're seeing strong asset performance with the QB two plant performing well.
Speaker 3: At the end of the third quarter, it had been operating consistently at 70% of design capacity. Both line 1 and line
At the end of the third quarter. It had been operating consistently at 70% of design capacity.
Both line one line two are operating well.
Speaker 3: Success so far with line two reflects a faster and more effective commissioning as a result of leveraging the learnings from line one.
Success, so far with line to reflect a faster and more effective commissioning as a result of leveraging the learnings from line one.
Speaker 3: As a result, we generated our first quarterly gross operating profit at QB2. Though modest, it is a key milestone in the development of the project.
As a result, we generated our first quarterly gross operating profit at QB two although modest it is a key milestone in the development of the project.
While we are pleased with the performance of the assay. So far we are not pleased with what we've had to increase capital guidance to U S $8.6 billion to $8.8 billion from eight to $8 $2 billion previously.
Speaker 3: While we are pleased with the performance of the app it's so far, we are not pleased with what we have had to increase capital guidance to US $8.6 to $8.8 billion from $8 to $8.2 billion previously.
Speaker 3: The increase was driven by delayed construction of both the molybdenum plant and the port offshore facilities, as well as costs associated with contract claims and slower than planned demobilization.
The increase was driven by delays in construction of both a molybdenum plant and the port offshore facilities as well as costs associated with contract claims and slower than planned demobilization.
Speaker 3: The last two outstanding pieces of construction at QB2 are the Bali plant and the Port Offshore facility.
The last two outstanding pieces of construction at QB, two while the Bali plant and the port offshore facilities the.
Speaker 3: The Molliplan will be completed by the end of the fourth quarter, and the port will be complete in the first quarter of 2024.
The moly plant will be completed by the end of the fourth quarter and the ports will be complete in the first quarter of 2024.
Speaker 3: and significant efforts are ongoing to mitigate risk and cost pressures.
Significant efforts are ongoing to mitigate risks and cost pressures.
Speaker 3: Importantly, we continue to expect to be operating at design throughput and recovery rates by year end. Although we expect to be near the lower end of QB2's 2023 annual copper production guidance range of 80,000 to 100,000 tonnes.
Importantly, we continue to expect to be operating at design throughput and recovery rates by year end.
Although we expect to be near the lower end of QB two 2023 annual copper production guidance range of 80000 to 100000 tons.
Speaker 3: Turning to slide six, where we outline a summary of our key 2023 operational guidance update.
Turning to slide six where we outline a summary of our key 2023 operational guidance updates.
Speaker 3: In our copper business unit, we decreased our annual production guidance for Highland Valley by 10,000 tons to reflect the impact of the localised geotechnical event in August .
In our copper business unit, we decreased our annual production guidance for Highland Valley by 10000 tonnes to reflect the impact of the localized geotechnical event in August .
Speaker 3: We did not expect any impact of this event to carry beyond 2023 and our unit cost guidance remains unchanged.
We do not expect any impact of this event to carry beyond 2023, and our unit cost guidance remains unchanged.
Speaker 3: Copper capitalized stripping guidance was revised to $395 million up from $295 million.
Copper capitalized stripping guidance was revised to $395 million up from 295 million the.
Speaker 3: The increase reflects additional stripping at QB2 while the concentrator was in ramp-up, as well as additional stripping at Antamina, and a change in the mine plan at Highland Valley due to the localized geotechnical event.
The increase reflects additional stripping at QB, two while the concentrated within ramp up as well as additional stripping it onto Mena and the change in the mine plan at Highland Valley due to the localized geotechnical event.
Speaker 3: And in still making coal, we lowered our 2023 production guidance to 23 to 23.5 million tons down from 24 to 26 million tons to reflect the intermittent plant challenges we've experienced this year. Our unit cost guidance remains unchanged.
And in steelmaking coal, we lowered our 2023 production guidance to 23 to 23 5 million tons down from 24 to 26 million tonnes to reflect the intermittent plant challenges we've experienced this year.
Our unit cost guidance remains unchanged.
With major maintenance activities completed and the implementation of our plant improvement initiatives, we saw an improvement in plant reliability in the third quarter relative to the first half of this year.
Speaker 3: With major maintenance activities completed and the implementation of our plant improvement initiative, we saw an improvement in plant reliability in the third quarter relative to the first half of this year.
Speaker 3: are still making coal operations are well positioned in the fourth quarter and into 2024.
Our steelmaking coal operations are well positioned in the fourth quarter and into 'twenty 'twenty four.
Speaker 3: Strong raw coal inventories are also expected to provide additional product flexibility and optionality going forward.
Strong raw coal inventories are also expected to provide additional product flexibility and optionality going forward.
Speaker 3: Across our businesses we remain laser focused on execution.
Across our businesses, we remain laser focused on execution.
Speaker 3: We intently manage our key business drivers and continuously enhance our operating practices while rigorously managing our controllable costs.
We intensely manage all key business drivers and continuously enhance our operating practices, while rigorously managing our controllable costs.
Speaker 3: For external risk that's side of our control, we have solid mitigation plans, such as supply chain recovery and strategic sourcing to mitigate inflationary cost pressures.
For external risks outside of our control, we have solid mitigation plans, such as supply chain recovery and strategic sourcing to mitigate inflationary cost pressures.
Speaker 3: As ever, our focus is to drive reliable operational performance and maintain our competitive low cost position.
As ever our focus is to drive reliable operational performance and maintained a competitive low cost position.
Speaker 3: With that, I will now hand it over to Crystal for additional color on the quarter.
With that I will now hand, it over to crystal for additional color on the quarter.
Thank you Jonathan.
Speaker 4: Starting with an overview of our third quarter financial results on flight at 8.
Starting with an overview of our third quarter financial results on slide eight.
Speaker 4: We generated 1.2 billion in adjusted EBITDA or 76 cents of adjusted diluted EPA with contributions from each of our businesses.
We generated $1 2 billion and adjusted EBITDA are 76000 of adjusted diluted EPS with contributions from each of our business units.
Speaker 4: However, we fell short of consensus analyst estimates for adjusted EBITDA and EPS in a quarter. The variance was primarily driven by the localized geotechnical event at Highland Valley, consensus expectations for QBQ's ramp up profile, the impact of lower steel making coal sales volume and higher than consensus corporate costs. This is partially offset by strong sales at Red Dog in the quarter.
However, we fell short of consensus analyst estimates for adjusted EBITDA and EPS in a quarter.
The variance was primarily driven by the localized geotechnical event at Highland Valley consensus expectations for Q, B Q's ramp up profile.
The impact of lower steelmaking coal sales volume and higher than consensus corporate costs.
This is partially offset by strong sales at Red dog in the quarter.
Speaker 4: Looking forward, we are well positioned for strong fourth quarter results for a number of reasons.
Looking forward, we are well positioned for strong fourth quarter results for a number of reasons.
Speaker 4: First, feel making coal prices remain robust driven by supply constraints and strong demand, particularly from India and China.
First steelmaking coal prices remain remain robust driven by supply constraints and strong demand, particularly from India and China.
Speaker 4: Prices rose through the third quarter in into October , and F will be premium spot prices currently stand at US $343 per ton.
Prices rose through the third quarter and into October and F. O B premium spot prices currently stand at EUR $343 per ton.
Speaker 4: As a result of pricing, flat reliability improvements and inventory levels are high margins, steel making coal business unit is well positioned to deliver strong financial performance in Q4.
As a result of pricing flat reliability improvements on inventory levels are high margin steelmaking coal business unit is well positioned to deliver strong financial performance in Q4.
Speaker 4: And at current copper prices, we expect QB2 to generate a gross profit in the fourth quarter as the ramp up continues in production rate.
And at current copper prices, we expect <unk> to generate a gross profit in the fourth quarter as we ramp up continues as the ramp up continues and production rates.
Speaker 4: Turning to the key drivers for our financial performance on slide 9.
Turning to the key drivers for our financial performance on slide nine.
Speaker 4: Adjusted eva dot in the third quarter decrease compared to the same period last year, primarily driven by considerably lower commodity prices for steel making coal and zinc, reduced sales volumes of steel making coal as well as copper at Highland Valley, and higher operating costs.
Adjusted EBITDA in the third quarter, a decrease compared to the same period last year, primarily driven by considerably lower commodity prices for steelmaking coal and zinc.
Reduced sales volumes of steelmaking coal as well as copper at Highland Valley and higher operating costs.
Speaker 4: These items were partially offset by higher copper prices, positive pricing adjustments, and a weaker Canadian dollar.
These items were partially offset by higher copper prices positive pricing adjustments and a weaker Canadian dollar.
Speaker 4: We continue to experience inflationary pressures in the cost of key supplies, including mining equipment, tires, labor, and contractors, despite the decline in diesel and other fuel costs compared to the same period last year.
We continue to experience inflationary pressures and of course, a key supply, including mining equipment tires labor and contractors. Despite the decline in diesel and other fuel call compared to the same period last year.
Speaker 4: This is reflected in our sustaining capital expenditures and full year unit cost guidance ranges which are both unchanged.
This is reflected in our sustaining capital expenditures and full year unit cost guidance range guidance ranges, which are both unchanged.
Speaker 4: Our underlying mining drivers remain relatively stable and we remain highly focused on managing our controllable operating extend.
Our underlying mining drivers remained relatively stable and we remain highly focused on managing our controllable operating expenditures.
Turning to each of our business units in more detail and starting with copper on slide 11.
Speaker 4: Turning to each of our business units in more detail and starting with copper on slide 11.
Speaker 4: Copper prices were up 8% year over year. Copper production volumes in the third quarter, including QB2, increased by 8%, while sales volumes, including QB2, increased by 3% compared to last year.
Copper prices were up 8% year over year comp.
Copper production volumes in the third quarter, including Cuba, Q increased by 8%, while sales volumes, including Cubic's, you increased by 3% compared to last year.
Speaker 4: At QB2, we produced 18,300 tons of copper and concentrate, more than half of which was produced in the month of September .
At QB two we produced 18300 tonnes of copper in concentrate more than half of which was produced in the month of September .
Speaker 4: Sales volumes of 14,300 tons drove our first quarterly growth profit before depreciation and amortization for QB2 of 19 million in line with our expectations.
Sales volumes of 14300 pilots drove our first quarterly gross profit before depreciation and amortization for <unk> of $19 million in line with our expectation.
Speaker 4: However, as mentioned earlier, production at Highland Valley was impacted by a localized geotechnical event in the south end of the Valley Pit in August , which required processing of lower grades stockpiled or for the remainder of the quarter.
However, as mentioned earlier production at Highland Valley was impacted by a localized geotechnical events in the south end of the valley pit in August which required processing of lower grade stockpiled ore for the remainder of the quarter.
Speaker 4: In early October , the ballot pit was safely reopened and mining of higher grade or recomm-
In early October the valley pit was safely reopen and mining of higher grade ore recommenced.
Speaker 4: A complete analysis of the failure resulted in a revised mine plan to mitigate production losses for the fourth quarter.
A complete analysis of the failure resulted in a revised mine plan to mitigate production losses for the fourth quarter.
Speaker 4: Production at Andecoyle was also impacted by a 14-day unplanned shutdown in August , which was due to a conveyor failure.
But absolutely on the coil was also impacted by a 14 day unplanned shut down in August which was due to a conveyor failure.
Speaker 4: Copper net cash unit costs increase as a result of lower production at Highland Valley and Carmen to Andecoyo and overall increase in maintenance and repair costs as well as lower zinc and Molly cash margins for buy products.
Copper cash unit costs increased as a result of lower production at Highland Valley, and Carmen and coil.
And overall increase in maintenance and repair costs as well as lower zinc and Molly cash margins for byproducts. Despite this our full year operating cost guidance for our copper business unit is unchanged.
Speaker 4: Despite this, our full year operating cost guidance for our copper business unit is und...
Speaker 4: Looking forward, we decreased our 2023 copper production guidance for Highland Valley to 100,000 to 108,000 tons to reflect the impact of the localized geotechnical event in Austin.
Looking forward, we decreased our 2023 copper production guidance for Highland Valley to 100000 to 108000 tonnes to reflect the impact of the localized geotechnical event in August here.
Speaker 4: QB2 production guidance is unchanged at 80,000 to 100,000 tons, although we expect to be at the lower end of the...
Two production guidance is unchanged at 80000 to 100000 tons, although we expect to be up in lower end of this range.
We have also lowered our total molybdenum production guidance for the full year due to the delay in construction of the QB two Molly glass.
Speaker 4: We have also lowered our total molybdenum production guidance for the full year due to the delay in construction of the QBQ Molly.
Speaker 4: For QB2, as a result of recent changes to IFRS, we are required to recognize sales proceeds and related costs associated with products sold during the ramp-up and commissioning phase through our earnings, rather than capitalizing these amounts.
For Q2 as a result of recent changes to iron ore. We are required to recognize sales proceeds and related costs associated with products sold during the ramp up and commissioning phase three of our earnings rather than capitalizing even though.
In addition, as Cupid two continues to ramp up production, we incur costs that are capitalized because they relate to bringing the asset to its design capacity operating level.
Speaker 4: In addition, as QB2 continues to ramp up production, we incur costs that are capitalized because they relate to bringing the asset to its design capacity operating level. These costs are referred to as capitalized costs.
These costs are referred to us capitalize wrap up call.
Speaker 4: We have capitalized 561 million of these costs as of September 30.
We have capitalized 561 million of these costs as of September 30th.
Speaker 4: For the fourth quarter, we expect capitalized wrap-up call to be lower than they'll capitalize in the third quarter.
For the fourth quarter, we expect capitalized wrap up call to be lower than those capitalized in the third quarter.
Speaker 4: As mentioned earlier, we expect to be treated to generate a gross profit in the fourth quarter as ramp up continues and at current copper prices.
As mentioned earlier, we expect to reach you to generate a gross profit in the fourth quarter as ramp up continues and at current copper prices.
Moving to zinc on slide 11.
Speaker 4: Profitability was impacted by zinc prices, which were 26% lower compared with the same period last year.
Profitability was impacted by the zinc prices, which were 26% lower compared with the same period last year.
Speaker 4: This was partially offset by Hiresink premiums on our contracted refined zinc sales.
This was partially offset by higher zinc premiums on our contracted refined zinc sales.
Speaker 4: RedDoc has had a strong shipping season this year and Zinking Concentrate sales increased 14% year over year to 269,700 tons, which was within our guidance range.
Red Dog has had a strong shipping season, this year and zinc in concentrate sales increased 14% year over year to 269700 tons, which was within our guidance range.
Speaker 4: However, Red Dog St. Concentrate Production was driven by reduced male throughput as a result of equipment failure.
However, red dog zinc concentrate production was driven by reduced mill throughput as a result of equipment failure.
At trail operations refined zinc production was impacted by reduced concentrate supply.
Speaker 4: At trail operations, refined zinc production was impacted by reduced concentrate supply.
Speaker 4: and refined lead production continues to be impacted by the kids that furnace that is nearing the end of its life. A replacement is slated for 2024.
And refined lead production continues to be impacted by the kids that furnace that is nearing the end of its life.
Replacement is slated for 2024.
Speaker 4: Looking forward, we expect Red Dog Q4 zinc sales of 130,000 to 150,000 tons, reflecting the normal seasonal pattern.
Looking forward, we expect Red dog Q4 sales of 130000 to 150000 tonnes, reflecting the normal seasonal pattern.
Speaker 4: And while our overall full year zinc production guidance remains unchanged, we made minor revisions to our slight good.
And while our overall full year zinc production guidance remains unchanged, we made minor revisions to our site guidance.
Speaker 4: A 5,000 ton decrease in red dog guidance due to production issues is offset by a corresponding increase in antimena's guidance due to higher that expected production. Turning now to
5000 ton decrease in Red dog's guidance due to production issues is offset by a corresponding increase in <unk> guidance due to higher than expected zinc production.
Turning now to steelmaking coal on slide 12.
Speaker 4: While prices for the quarter were lower than that particularly strong third quarter last year, prices remain robust and are well above historical average.
While prices for the quarter were lower than that particularly strong third quarter last year prices remained robust at or well above historical averages.
Speaker 4: Production was impacted by clan maintenance outages at two of our operations, including Forting River, our largest operation.
Production was impacted by planned maintenance outages at two of our operations, including Fording River our largest operation.
Sales of $5 2 million tons were below our guidance range of $5 six 6 million tons due to a slower than anticipated supply chain recovery. Following the impacts of BC wildfires, the labor disruptions at BC courts, and intermittent plant challenges.
Speaker 4: They all the 5.2 million tons were below our guidance range of 5.6 to 6 million tons due to a slower than anticipated supply chain recovery following the impacts of DC wildfires, the labor disruptions at DC courts and intermittent plant challenges.
Adjusted site cost cost of sales per tonne was impacted by lower sales volumes and increased maintenance activity associated with the planned outages, while transportation costs reflect higher demurrage and port charges related to lingering impacts from the labor disruption at B C ports on the D C wildfires.
Speaker 4: Adjusted site cash cost of sales per ton was impacted by lower sales volumes and increased maintenance activities associated with the planned outages while transportation costs reflect higher damage and port charges related to lingering impacts from the labor disruptions at the supports and the DC wildfire
Speaker 4: Looking forward, we expect Q4 sales to be between 5.8 to 6.2 million tons, maximizing use of available inventory.
Looking forward, we expect Q4 sales to be between five eight to $6 2 million tonnes maximizing use of available inventory.
Speaker 4: And as mentioned earlier, we lowered our annual coal production guidance to 23 to 23.5 million tons for the remainder of the year.
And as mentioned earlier, we lowered our annual coal production guidance to 23 to $23 5 million tonnes for the remainder of the year.
This lower level of production is expected to put upward pressure on our adjusted site cost of sales and transportation unit call and we now expect both to be at the upper end of our guidance ranges for the full year.
Speaker 4: This lower level of production is expected to put upward pressure on our adjusted site cost of sales and transportation unit costs, and we now expect both to be at the upper end of our guidance ranges for the full year.
Overall, our steelmaking coal business is well positioned to continue delivering strong financial performance for the remainder of the year with average steelmaking coal prices above U S $355 per ton month to date.
Speaker 4: Overall, our steelmaking coal business is well positioned to continue delivering strong financial performance for the remainder of the year with average steelmaking coal prices above US$355 per 10 months to date, plant reliability improvements and current inventory level.
Plant reliability improvements and current inventory levels.
Speaker 4: Our financial position remains strong as shown on slide third.
Our financial position remained strong as shown on slide 13.
Speaker 4: Our liquidity is currently $7 billion, including 1.5 billion of cash, and we continue to maintain investment grade private ratings from F&P, Moody's, and Fitch. We have no note maturities due.
Our liquidity is currently 7 billion, including $1 5 billion of cash and we continue to maintain investment grade credit ratings from S&P, Moody's and Fitch.
We have no note maturities due until 2030.
Speaker 4: In the third quarter, we paid our quarterly base dividend of 12.5 cents per share.
In the third quarter, we paid our quarterly base dividend of 12, and a half cents per share.
Speaker 4: year to date and in accordance with our capital allocation framework, we have paid $451 million in dividends, purchased $85 million in Class B shares and advanced our ongoing de-leveraging with debt repayment of $457 million.
Year to date and in accordance with our capital allocation framework, we have paid $451 million in dividend.
$85 million in class B shares and advanced our ongoing deleveraging with debt repayment of $457 million.
Speaker 4: We remain focused on balancing our investment and growth against returning capital to shareholders while maintaining a strong balance sheet.
We remain focused on balancing our investment and growth against returning capital to shareholders, while maintaining a strong balance sheet with that I'll turn it back over to John a home.
Speaker 3: Thanks, Crystal. Before I wrap up, I want to provide an update on separation.
Thanks, Chrystal before I wrap up I wanted to provide an update on separation.
Speaker 3: With responsible value creation as our North Star, we continue to engage with a number of parties that have expressed interest in our steelmaking coal business.
With responsible value creation is our north star, we continue to engage with a number of parties that have expressed interest in our steelmaking coal business we.
Speaker 3: We're evaluating a range of potential options guided by several objects.
We are evaluating a range of potential options guided by several objectives.
Based on extensive shareholder feedback throughout this process one of our core objectives is to achieve a full separation about base metals in steelmaking coal businesses.
Speaker 3: Based on extensive shareholder feedback throughout this process, one of our core objectives is to achieve a full separation of our base metals and still making coal business.
Speaker 3: This is key to unlocking the value of our Unrivaled Copper Growsport Folio.
This is key to unlocking the value of our unrivaled copper growth portfolio.
Speaker 3: We will ensure tech is well capitalized and positioned to pursue our copper growth potential and deliver strong returns to shareholders while maintaining a strong balance.
We will ensure tankage, well capitalized and positioned to pursue our copper growth potential and deliver strong returns to shareholders, while maintaining a strong balance sheet.
Speaker 3: At the same time, we aim to realise the full value of our steelmaking coal business for our shareholders.
At the same time, we aim to realize the full value of our steelmaking coal business for our shareholders.
Speaker 3: An important consideration will be the certainty of achieving separation, including receipt of the required regulatory approval.
An important consideration will be the certainty of achieving separation, including receipt of the required regulatory approvals.
Speaker 3: And it is also critical that the transaction allows us to maintain social and environmental commitments to stakeholders in the Alc Valley.
And it is also critical that the transaction allows us to maintain social and environmental commitments to stakeholders in the Elk Valley.
Speaker 3: Overall, the Board and Special Committee are pleased with the progress we have been making.
Overall, the board and Special Committee are pleased with the progress we have been making.
Speaker 3: Separation remains a priority and we are moving through the process as expeditiously as possible.
Separation remains a priority and we are moving through the process as expeditiously as possible.
Driving organic growth through development of our copper project pipeline remains central to our value creation journey.
Speaker 3: Driving organic growth through development of our copper project pipeline remains central to our value creation journey. Looking at slide 16, we have made meaningful progress on our near-term development projects during the quarter.
On slide 16, we have made meaningful progress on our near term development projects during the quarter.
Speaker 3: We further the feasibility studies for Tham Nicholas and their Kravrada Blanket Mill expansion project.
We furthered the feasibility studies for San Nicolas Anelka broader Blanka mill expansion project.
Speaker 3: And we completed the feasibility study for HPC 2040 in Q3 with the submission of the project Environmental Assessment in October .
And we completed the feasibility study for HBC 2040 in Q3 with the submission of the project environmental assessment in October .
Looking forward, we are targeting key milestones for these projects in the fourth quarter.
Speaker 3: Looking forward, we're targeting key milestones for these projects in the fourth quarter, including completion of the feasibility study for QBME.
Including completion of the feasibility study for QB MAA submission.
Speaker 3: submission of the MIAR permit application for San Nicolas and commencement of detailed engineering.
Submission of the MAA all permit application for San Nicolas.
And commencement of detailed engineering for that for now.
Speaker 3: As shown on slide 17, we have an unrivaled suite of copper growth opportunities diversified by geography, scale and time to develop.
As shown on slide 17, we have an unrivaled suite of copper growth opportunities diversified by geography scale and time to development.
Speaker 3: There is significant work underway to advance development of each of these projects, including resource definition, engineering and design, permitting and stakeholder engagement.
There is significant work underway to advanced about development of each of these projects, including resource definition engineering and design permitting and stakeholder engagement and.
Speaker 3: and we have de-risked product delivery financially and operationally through a partnership approach such as in the case of San Nicolas.
And we have Derisked project delivery financially and operationally through a partnership approach such as in the case of San Nicolas.
Speaker 3: projects we have in place double our copper production in the near term with the potential to deliver one million tons of annual production by the end of the decade to drive substantial new intrinsic value.
The projects, we have in place double our copper production in the near term with the potential to deliver 1 million tons of annual production by the end of the decade to drive substantial new intrinsic value.
In prioritizing our growth options, we take into consideration multiple investment criteria, including strong financial returns balance sheet capacity and financing options.
Speaker 3: In prioritising our growth options, we take into consideration multiple investment criteria, including strong financial returns, balance sheet capacity and financing options, project readiness, project development capacity and the social, political and environmental context.
Readiness project development capacity, and the social political and environmental context.
Speaker 3: And importantly, each of these projects will have to compete for capital with the rest of the business and generate strong returns.
And importantly, each of these projects will have to compete for capital with the rest of the business and generate strong returns.
Speaker 3: While permitting is a major gating factor in determining potential sanction dates, we are largely in control of project timing. And we will continue to apply our disciplined capital allocation framework that balances growth with returns to shareholders.
Well permitting is a major gating factor in determining potential sanction dates we are largely in control of project timing and.
And we will continue to apply our disciplined capital allocation framework that balances growth with returns to shareholders.
Speaker 3: In closing, on slide 18, this is a very exciting time for tech as we continue our pursuit of responsible value creation for our shareholders.
In closing on Slide 18. This is a very exciting time for tech as we continue our pursuit of responsible value creation for our shareholders.
Speaker 3: We are continuing to evaluate options for a separation that would realise fair value for our wheel class steelmaking coal business and unlock the full potential of our base metals.
We are continuing to evaluate options for a separation that would realize fair value for our world class steelmaking coal business and unlock the full potential of our base metals business.
Speaker 3: and we continue to make significant progress against our copper growth strategy with the ramp up of QB2 and advancements in our near-tim development project.
And we continue to make significant progress against our copper growth strategy with the ramp up of QB, two and advancements in our near term development projects.
Speaker 3: Guided by our capital allocation framework, we are committed to balancing our opportunities for growth with financial resilience while providing cash returns to shareholders.
Guided by our capital allocation framework, we are committed to balancing our opportunities for growth with financial resilience, while providing cash returns to shareholders.
Speaker 3: At the same time, we are focused on execution and ensuring we pursue responsible value creation for shareholders. Thank you, operator.
At the same time, we are focused on execution and ensuring we pursue responsible value creation for shareholders.
Thank you operator, please open the line for questions.
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Speaker 1: We ask that you please limit yourself to one question and one follow up.
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Unknown Shareholder: Ladies and gentlemen, thank you for standing by.
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Unknown Shareholder: Welcome to Tech's third quarter, 2023 earnings release conference call. At this time, all participants are in listen only mode.
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The first question comes from Aurist Walkabout with Scotiabank.
Speaker 1: The first question comes from Oris Waccidow with Scotiabank.
Please go ahead.
Speaker 5: Hi, good morning Jonathan, so follow up questions if I could on the. The plan calls every.
Hi, good morning.
Charter to sort of follow up questions, if I could on the planned coal separation.
Speaker 5: I mean, obviously this has been going on now for some time. Can you give us a better idea of where you are in that process? Like, are we close to the finish line, or do you think this could just take a lot longer, given more interested parties coming to the table? And could it spill into next year?
Obviously this has been going on now for some time can you give us a better idea of where you are in that process like or are we close to the finish line or do you think this could just take a lot longer given more interested parties coming to the table that could spill into next year.
Unknown Shareholder: This conference is being recorded on Tuesday, October 24th, 2023.
Fraser Phillips: I would now turn the conference over to Fraser Phillips, Senior Vice President, Investor Relations, and Strategic Analysis. Please go ahead. Various risk uncertainties may cause actual results to vary. Tech 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, no reference, various non-gap measures throughout this call, explanations and reconciliation regarding these measures can be found in our MDNA, the latest press release on our website.
Speaker 3: Hi RS, thanks for the question. Look at you, we're making very good progress here. I'm very happy as to where we are at present. You know, we have a competitive process, which is the most important thing here to ensure we have options ahead of us to realize a good outcome. As I've mentioned a couple of times recently, you know, I believe we'll be in a position to make a decision before the end of the year. That haven't changed. The key thing for us is to ensure we make the best decision here possible rather than rush the process. But as I said, we're well positioned right now. We're happy with the level of competition we have. And I'm confident we can get a good outcome for Shell.
Yeah, Hi, orris. Thanks, Thanks for the question.
We're making very good progress here I'm very happy.
To where we are a presence.
You know we have a competitive process, which is which is the most important thing here to ensure we have options ahead of us to realize a good outcome.
As I've mentioned, a couple of times recently.
You know I believe we'll be in a position to make a decision before the end of the year.
That hasn't changed.
The key thing for US is to ensure we make make the best decision here possible rather than rush the process, but as I said, we're well positioned right now where we're happy with the level of competition, we have and I'm confident we can get a good outcome for shareholders.
Jonathan Price: Jonathan Price, our CEO, will begin today's call with highlights from our third quarter results.
Speaker 5: Okay, and just as a follow-up, you spoke to the fact that certainty of achieving separation is a key criteria here including regulatory approval. Do you think that a partial sale would be easier from a regulatory approval perspective than a full sale?
Okay, and just as a follow up your you spoke to the fact that certainty of achieving separation is a key criteria here, including regulatory approval do you think that a partial sale it would be easier from a regulatory approval perspective than a wholesale.
Crystal Prystai: Crystal Press Die, our CFO, will follow the additional caller on the quarter.
Jonathan Price: Jonathan will conclude today's session with a brief update on our valuation strategy before we open the lines to questions.
Jonathan Price: With that, I'll turn the call over to Jonathan. Thank you, Fraser, and good morning, everyone.
Speaker 3: I think every different option here has its unique characteristics in terms of what that means from an approvals perspective. The overarching focus here is on the delivery of shareholder value. That has to come first and foremost.
Okay. I think every every different option here has its has its unique characteristics in terms of what that means from an approvals perspective, you know.
Jonathan Price: I'm speaking to you today from a key K in the tariff packet region of Northern Chile, where we're gathering this week to celebrate the opening of our flagship QB2 operation. This is a momentous event for Tech with Kravada Blanca as the cornerstone of our copper growth strategy, more on that later. To start on slide four, our positive financial performance in the third quarter reflects continued strong pricing for copper and steelmaking coal in addition to higher base metal sales volumes.
The overarching focus here is on the delivery of shareholder value you know that has to come first and foremost our in considering that delivery of shareholder value of course, we have to consider the certainty of execution and the risks associated.
Speaker 3: In considering that delivery of shell the value of course we have to consider the certainty of execution and the risks associated
Speaker 3: with any transaction. You know, the requirement for regulatory or other approvals is a function of the nature of any transaction. And ultimately, we will do what we believe is in the best interest of our shareholders, having regard for those regulatory and approval requirements.
With any transaction.
You know the the requirement for regulatory or other approvals is a function.
The the nature of any transaction.
Jonathan Price: Adjusted EBITDA of 1.2 billion reflects lower than expected steelmaking coal sales in the quarter and a localized tree a technical event at Highland Valley in August. During the quarter, we made significant progress to unlock the value of our industry leading copper portfolio. Our QB2 project continues to ramp up and is expected to achieve design throughput and recovery rates by year end. The assets are performing well and we are pleased with the strong operational performance we have seen to date.
And ultimately we will do what we believe is in the best interest of our shareholders, having regard for those regulatory and approval requirements.
Speaker 5: Okay, thank you. And one more if I could squeeze it in. Just if you decide to do the partial fail option.
Okay. Thank you and one more if I could squeeze it in just if you decide to do the partial fail auction what would it be your goal to put control of E V or into the public market or control with and older.
Speaker 5: Would it be your goal to put control of EVR into the public market or control with an electric vehicle you will need radio.
Speaker 3: Look, I won't be specific on that, Orest, at this point in time. I mean, I think...
Okay, I won't be specific on that.
Or is that at this point in time, I mean I think.
Jonathan Price: We have a line of sight to double our consolidated copper production when QB2 reaches full capacity and we continue to advance our actionable portfolio development options to position tech for our next phase of copper growth. Importantly, we ended the quarter in a strong financial position with $7 billion of liquidity included $1.5 billion in cash. And we return $65 million to shareholders through the payment of our quarterly base dividend. In the third quarter, we continue to make steady progress against our sustainability goals.
Speaker 3: You know the we we've discussed the the range of options that we have before us here You know with a with a full sale at one end of the the spectrum and a an appartial sale and a spin at the other end of the spectrum with the latter Providing ongoing exposure to our to our shareholders in a respective Both as filmmaking coal market the fundamentals of which are very attractive going forward and of course a quality high margin business like EBR you know ultimately the you know the specifics of any transaction will be a subject you know of the conclusion of this process so so I won't say more on that now other than as I mentioned before we're happy with the options in front of us and and we believe we're well set to drive a competitive outcome
You know the way we've discussed the the range of options that we have before US here you know with a with a full sale at one end of the spectrum in a in a partial sale and the spin at the other end of the spectrum with the latter now providing ongoing exposure to our to all shareholders in respect of the both the steelmaking coal market fundamentals.
Yeah look very attractive going forward and of course, a quality high margin business like E V O O.
Ultimately the you know the specifics of any transaction will be a subject of the conclusion of this process. So I won't say more on that now other than as I mentioned before we were happy with the options in front of US and we believe we are well set to drive a competitive outcome.
Jonathan Price: We announced an agreement with Northern to reduce emissions in our steel-making coal for ply chain. The agreement is expected to reduce annual emissions from tech shipments handled by Northern by 25%, and our reported high potential incidence frequency remained low at a rate of 0.13.
Thank you very much.
Speaker 6: Thank you very much.
Thanks, Chris.
The next question comes from Liam Fitzpatrick with Deutsche Bank. Please go ahead.
Jonathan Price: Now turning to QB2 on slide 5, we made solid progress on the ramp up during the quarter, and as I just mentioned, we're seeing strong asset performance with the QB2 plant performing well. At the end of the third quarter, it had been operating consistently at 70% of design capacity. Both line 1 and line 2 are operating well. Success so far with line 2 reflect a faster and more effective commissioning as a result of leveraging the learnings from line 1. As a result, we generated our first quarterly gross operating profit at QB2. Though modest, it is a key milestone in the development of the project.
Good morning, Jonathan just a couple on on QB two.
It's clearly a hefty capex increase given you only re guide as earlier this year.
Speaker 7: and we're only talking about a three-month delay for two parts of the project. So the question is, were these issues not largely loan-known about earlier in the year? And can you outline what the major component is behind this increase? And the follow-up kind of links to that and your future growth strategy, because clearly a lot of it is based around the next crop of copper project. So...
And we're only talking about a three months delay so two parts of the project. So the question is were these issues not largely loan known about earlier in the year and then can you outline what the major component is.
This increase.
And the follow up kind of linked to that and your future growth strategy, because clearly a lot of it is based around the next crop of copper projects. So.
Speaker 7: What sort of changes are you making or have you made to ensure that we're not going to be faced with similar issues in the future? Thank you.
What sort of changes are you, making or how do you may to ensure that we're not going to be faced with similar issues in the future. Thank you.
Jonathan Price: While we are pleased with the performance of the assets so far, we are not pleased with what we have had to increase capital guidance to US $8.6 to $8.8 billion from $8 to $8.2 billion previously. The increase was driven by delayed construction of both the molybdenum plant and the port offshore facilities, as well as costs associated with contract claims and slower than planned demobilization. The last two outstanding pieces of construction at QB2 are the moly plants and the port offshore facilities.
Yes.
Speaker 3: Thanks for the questions, Liam. I'll come back to the second question in a moment, and I'll hand off the first question to Red Konga. Our President's in chief operating officer. Just to preface that, I will say, the issues that have caused us to regide the QB2 cap Xs as we have done today are issues that arose in the third quarter, and there are issues that created impacts to both schedule and costs, I'll hand over to Red to unpack that in greater detail.
Thanks for the questions Lee and I'll come back to the second question in a moment and I'll handle the first question to that's a red conger.
Our president and Chief operating officer, just to preface that I will say you know the issues that have caused us to re guide them. The the QB two capex as we have done today or issues that arose in the third quarter and their issues that created impacts to both schedule and costs, but I'll I'll hand over to red to unpack that and greater.
Detail Yeah, good morning Liam.
Jonathan Price: The moly plant will be completed by the end of the fourth quarter and the port will be complete in the first quarter of 2024. And significant efforts are ongoing to mitigate risk fan cost pressures. Importantly, we continue to expect to be operating at design throughput and recovery rates by year end. Although we expect to be near the lower end of QB2's 2023 annual copper production guidance range of 80,000 to 100,000 tonnes.
We are focusing on delivering reliable and robust copper circuit I mean that is that is first to foremost in our interactions in several unknowns.
Presented themselves during the third quarter, Let me, let me give you a couple of examples of those and what we have to do to address them.
We commissioned the tailings return water facility early in the third quarter and we found that all 16 of these huge tailing water return pumps had an internal manufacturing defect that evidenced only when they were operating at full load all of the pre op.
Jonathan Price: Turning to slide 6, where we outline a summary of our key 2023 operational guidance updates. In our copper business unit, we decreased our annual production guidance for Highland Valley by 10,000 tonnes to reflect the impact of the local ISG technical event in August. We do not expect any impact of this event to carry beyond 2023 and our unit cost guidance remains unchanged. Copper capitalized stripping guidance was revised to $395 million up from $295 million.
Jonathan Price: The increase reflects additional stripping at QB2, while the concentrated was in ramp up, as well as additional stripping at Antimena and the change in the mine plan at Highland Valley due to the local ISG technical event. And in still making coal, we lowered our 2023 production guidance to 23 to 23.5 million tonnes down from 24 to 26 million tonnes to reflect the intermittent plan challenges we've experienced this year. Our unit cost guidance remains unchanged.
Testing et cetera.
It was was unable to detect this this default. So once you know once we got them up and running at full load they were overheating.
So we had to do discovery work to understand what what that was we had two responses. There we had to run them at lower rated capacity to prevent the.
The overheating and then once once we discovered what the defect was in the original case and we had to take out each call.
Send it down to a machine shop habit modified per design specs than bring it back up to the site get them installed again and.
I'm happy to say that are.
They're all running.
Running appropriately now so that that fits has because cure the problem but.
Theres, a major system, where you essentially had to build it twice and.
Jonathan Price: With major maintenance activities completed and the implementation of our plant improvement initiative, we saw an improvement in plant reliability in the third quarter relative to the first half of this year. Our still making coal operations are well positioned in the fourth quarter and into 2024. Strong raw coal inventories are also expected to provide additional product flexibility and optionality going forward.
Do some of the manufacturing on the on the pumps that should have arrived to us.
And in working order and ready to go so that that was a.
A major.
Planned piece of work for US and of course, you take resources off of other planned work that you had during the quarter due to do that rework. So that's that's one example of something that we discovered and addressed and successfully completed.
Jonathan Price: Across our businesses, we remain laser focused on execution. We intently manage our key business drivers and continuously enhance our operating practices while rigorously managing our controllable costs. For external risk, outside of our control, we have solid mitigation plans such as supply chain recovery and strategic sourcing to mitigate inflationary cost pressures. As ever, our focus is to drive reliable operational performance and maintain our competitive low cost position.
Additionally.
The last Jedi pile that we're drilling out in the in the port area that drove it failed.
Subsurface and in the Ocean floor took us two months to two.
To get that unit out out of the ground and in and out of our way we were unable to drill to the pile in and an alternate location because of the critical.
Crystal Prystai: With that, I will now hand it over to Crystal for additional color on the quarter. Thank you, Jonathan. Starting with an overview of our third quarter financial results on flight to eat. We generated 1.2 billion in adjusted EBITDA or 76 cents of adjusted diluted EPS with contributions from each of our business units. However, we fell short of consensus analyst estimates for adjusted EBITDA and EPS in the quarter. The variance was primarily driven by the localized geotechnical event at Highland Valley, consensus expectations for QBQ's ramp up profile, the impact of lower steel making coal sales volume and higher than consensus corporate costs. This is partially offset by strong sales at red dog in the quarter.
The nature of the load bearing requirements. There. So that that was just something that you had to power through and get done.
No way, we could could forecast that or or know that that was going to occur.
And that has delayed the port.
From completion from the end of the fourth quarter into the end of first quarter of next year, we've hired two additional contractors.
To work on the completion of other offshore areas mooring boys et cetera offshore. So those again those are scheduled.
Schedule delays overhead continues you have to hire more contractors to cover in behind and significant cost increases associated with that.
Crystal Prystai: Looking forward, we are well positioned for strong fourth quarter results for a number of reasons. First, the steel making coal prices remain robust driven by supply constraints and strong demand, particularly from India and China. Prices rose through the third quarter in into October and FOB premium spot prices currently stand at US $343 per ton. As a result of pricing, flat reliability improvements and inventory levels are high margins, steel making coal business unit is well positioned to deliver strong financial performance in Q4. And at current copper prices, we expect QBQ to generate a gross profit in the fourth quarter as the ramp up continues in production rates.
And then.
We have a variety of claims that contractors have submitted.
That are associated with <unk>.
Cost that they believe they've incurred due to owner directed changes in work plans. So we've got a significant amount of work that we need to do to review all of those claims.
Reconcile those and.
You know determine what.
Whats settlements are appropriate.
In order for Russ.
For us to be complete in and.
Truly assess the full impact of that we've we've put all of those claim figures into the forecast now even though we know some of them may or may not be settled for exactly what was applied for.
Crystal Prystai: Turning to the key drivers for our financial performance on slide 9, adjusted EBITDA in the third quarter decrease compared to the same period last year, primarily driven by considerably lower commodity prices for steel making coal and zinc, reduced sales volumes of steel making coal as well as copper at Highland Valley and higher operating costs. These items were partially offset by higher copper prices, positive pricing adjustments and a weaker Canadian dollar. We continue to experience inflationary pressures in the cost of key supplies, including mining equipment, tires, labor and contractors, despite the decline in diesel and other fuel costs compared to the same period last year. This is reflected in our sustaining capital expenditures and full year unit cost guidance ranges which are both unchanged. Our underlying mining drivers remain relatively stable and we remain highly focused on managing our controllable operating expenditures.
This is all of this rework et cetera is into.
We intentionally delayed to the moly plant. So that you know again in preference to the.
The reliability of the copper circuit.
That approach has served us very well were seeing substantial.
<unk> month to month in plant throughput and performance and really very excited about how the plant is performing what the future holds for the performance of that plant.
Yeah, Thanks, Fred and just you know to sort of reiterate the Liam.
As we said the only major areas of construction and outstanding now of the moly plant and the ports are in.
In the guidance that we provided today. We have included are all known risks as Red has said and we've included those risks are pre any mitigation and of course. We've included some allowance in here for for unknown risks. So we do believe that the guidance. We've put forward today, we'll we'll capture all remaining capex through to the completion of.
Crystal Prystai: Turning to each of our business units in more detail and starting with copper on slide 11. Copper prices were up 8% year over year. Copper production volumes in the third quarter, including QB2 increased by 8% while sales volumes including QB2 increased by 3% compared to last year.
The project at this stage and to your second question on future growth and implications here.
Lee of course, you know we will undertake a detailed our lessons learned.
Crystal Prystai: At QB2 we produced 18,300 tons of copper and concentrates, more than half of which was produced in the month of September, sales volumes of 14,300 tons drove our first quarterly gross profit before depreciation and amortization for QB2 of 19 million in line with our expectation. However, as mentioned earlier, production at Highland Valley was impacted by a localized geotechnical event in the sales end of the valley pit in August, which required processing of lower grade stockpiled ore for the remainder of the quarter.
<unk> from from the QB two experienced.
Experience and make sure that those lessons and assumptions are carried for forward to future projects you know.
Both in terms of the the capital assumptions, we make but also the how those projects are delivered.
You know one example that we've referenced many times through the course of this project has been the challenges we've had with labor productivity now.
Now some of that of course, you know it could be a function of of Covid and the the hangover from Covid and some of that of course could be a function of the environment in which this project is being built you know and at 44 900 meters. It say, it's a challenging place to deliver a major project, but we will take those assumptions forward and make sure that theyre reflected in future.
Crystal Prystai: In early October, the valley pit was safely reopened and mining of higher grade ore recommenced. A complete analysis of the failure resulted in a revised mine plan to mitigate production losses for the fourth quarter. Production at Andacoil was also impacted by a 14-day unplanned shutdown in August, which was due to a conveyor failure. Copper net cash unit costs increased as a result of lower production at Highland Valley and carbon to Andacoil and overall increase in maintenance and repair costs, as well as lower zinc and molly cash margins for byproducts. Despite this, our full year operating cost guidance for our copper business unit is unchanged.
Projects, otherwise I think if you look at the projects in our portfolio. It is worth noting that you know they are in order of magnitude simpler.
In terms of the complexity in terms of their scale and in terms of that scope. Yeah. You know when you look at QB, two and the full scope of vantage really five or six major projects are rolled into one.
With Port Decile pipelines mine concentrated tailings all at World class scale.
The other projects you see in the pipeline here some of them with capital costs.
Twice, the $2 billion to $1 billion.
Crystal Prystai: Looking forward, we decreased our 2023 copper production guidance for Highland Valley to 100,000 to 108,000 tons to reflect the impact of the localized geotechnical event in August. QB2 production guidance is unchanged at 80,000 to 100,000 tons, although we expect to be at the lower end of this range. We have also lowered our total molybdenum production guidance for this full year due to the delay in construction as the QB2 molly class. For QB2, as a result of recent changes to IFRS, we are required to recognize sales proceeds and related costs associated with product sold during the ramp up and commissioning phase through our earnings rather than capitalizing these amounts.
You know reflected very different a very different proposition for the company, but that said, there's a lot of linzess for QB two we'll make sure. We we understand those lessons well before we sanction our next project.
Thank you for the color if I'm allowed a very brief follow up just on your <unk> comments I just wanted to make sure I'm understanding it correctly because you mentioned.
Execution risk was was was key.
It's kind of what what's being implied here is that kind of.
I guess, a spin of some form as is the lower execution routes or are you just kind of outlining that it's basically a call between the execution risk on a spin versus a sale to sort of single party.
Crystal Prystai: In addition, as QB2 continues to ramp up production, we incur costs that are capitalized because they relate to bringing the asset to its design capacity operating level. These costs are referred to as capitalized ramp up costs. We have capitalized 561 million of these costs as of September 30. For the fourth quarter, we expect capitalized ramp up costs to be lower than those capitalized in the third quarter. As mentioned earlier, we expect QB2 to generate a gross profit in the fourth quarter as ramp up continues and at current copper prices.
So look I think limits intended to be a general comment is not intended to pointed anything anything specific here you know when when assessing the creation of value for shareholders. You've got a sort of look at that in the broader sense and of course, you know the the certainty or the risk of the delivery of that value is a key consideration.
And you know risks and risks and approvals and those sorts of things can manifest in a number of ways. So it's not intended to be a direct comments to favor one option over another just to sort of give some some color to the the thought process here that you know headline headline price and headline value is important but as these.
Crystal Prystai: Moving to zinc on slide 11. Johnson. Profitability was impacted by zinc prices, which were 26 percent lower compared with the same period last year. This was partially offset by higher zinc premiums on our contracted refined zinc sales. Red dog has had a strong shipping season this year, and zinc and concentrate sales increased 14 percent year over year to 269,700 tons, which was within our guidance range.
The certainty of the delivery of that value.
Understood. Thank you.
Thanks Liam.
And the next question comes from Dalton Barreto with Canaccord Genuity.
Please go ahead.
Thank you good morning, Jonathan that team.
I wanted to say on that on that separation a topic of conversation there.
I guess my first question, Jonathan and given where oil prices are as well as the implied valuation on the BHP Whitehaven deal has the thinking on valuation between you and your potential buyers changed at all relative to what was on the table earlier this year.
Crystal Prystai: However, red dog zinc concentrate production was driven by reduced milk throughput as a result of equipment failure. At trail operations, refined zinc production was impacted by reduced concentrate supply, and refined lead production continues to be impacted by the kids at furnace that is nearing the end of its life. A replacement is slated for 2024. Looking forward, we expect red dog Q4 zinc sales of 130,000 to 150,000 tons. We're selecting the normal seasonal pattern.
Yeah.
Thanks for the question Dalton looking I mean, it's fair to say that you know I think the view of the market has evolved.
Since February one when we announced our prior separation.
The outlook the outlook for steelmaking coal has definitely improved and I think a you know a recognition here of the favorable structure for that market going forward with you know now I think a greater understanding of the long term need for the role of blast furnaces in the production of steel and limited.
Crystal Prystai: And while our overall full year zinc production guidance remains unchanged, we made minor revisions to our site guidance. A 5,000 ton decrease in red dog guidance due to production issues is offset by a corresponding increase in antimina's guidance due to higher than expected zinc production.
New met coal supply expected to come to the market and of course, the you know the growth of blast furnace capacity in India as well is something.
Crystal Prystai: Turning now to steel making coal on slide 12, while prices for the quarter were lower than that particularly strong third quarter last year, prices remain robust and are well above historical averages. Production was impacted by planned maintenance outages at two of our operations, including Forting River, our largest operations.
That is particularly interesting for those structural dynamics. So I think the the view of the market has changed long term you know once the spot prices is very encouraging right. Now you know we look through that and we look to the long term assumptions here that underpin the business I think as well you know post the discussions we had earlier in the year regarding separation.
Crystal Prystai: Sales of 5.2 million tons were below our guidance range of 5.6 to 6 million tons due to a slower than anticipated supply chain recovery following the impact of BC wildfires, the labor disruptions at BC courts and intermittent plant challenges. Adjusted site cash cost of sales per ton was impacted by lower sales volumes and increased maintenance activities associated with the planned outages, while transportation costs were flocked higher to merge and port charges related to lingering impacts from the labor disruptions at BC courts and the BC wildfires. Looking forward, we expect Q4 sales to be between 5.8 to 6.2 million tons, maximizing use of available inventories.
The appreciation for EV or as a long life high margin producer of very high quality hard coking coal has increased in the market as well. So look I think there has been a move and expectations.
You know over the over the last six or eight months as a result of those two factors.
And of course, you know in discussions with our shareholders, which have been ongoing throughout that period, you know they convey to us their expectations here as well and that's something of course, we take onboard as we think through the options in front of us.
Great. Thanks for that Jonathan and then just maybe as a follow up in terms of getting a deal done before year end. If you. If you do opt for a partial partial sale as well as the spin co do you anticipate those happening together or could we see an announcement on a partial sale by year end and then just some sort of a lag.
Crystal Prystai: And as mentioned earlier, we lowered our annual coal production guidance to 23 to 23.5 million tons for the remainder of the year. This lower level of production is expected to put upward pressure on our adjusted site cost of sales and transportation unit costs, and we now expect both to be at the upper end of our guidance ranges for the full year. Overall, our steel making coal business is well positioned to continue delivering strong financial performance for the remainder of the year with average steel making coal prices above US $355 per ton month to date, plant reliability improvement, and current inventory levels.
On the spend so that will allow you to recoup some of these are these high coal prices.
I think in adults and a proposal here is you know if and when we stepped forward with a with a transaction we would expect to step forward with a complete solution solution for the separation of <unk> from from the base metals.
<unk>.
Great. Thanks for that and then maybe one last one on QB two as you wrap it up do you where is the bottleneck currently is it at the mine I said that the mill is supporting infrastructure and you know.
Crystal Prystai: Our financial position remains strong as shown on slide 13. Our liquidity is currently $7 billion, including 1.5 billion of cash, and we continue to maintain investment-grade private ratings from S&P, Moody's, and FIT.
What is the primary hurdle to get to full design capacity.
Yeah, adult and I'll I'll hand, you over tissues that ball mile RSVP is our copper business unit here, who is responsible for the ramp up in the future operation of <unk>. Thanks, Jonathan.
Crystal Prystai: We have no note maturities due until 2030. In the third quarter, we paid our quarterly-based dividend of 12.5 cents per share. Year-to-date and in accordance with our capital allocation framework, we have paid 451 million in dividend, purchased 85 million in-class fee shares, and advance our ongoing de-leveraging with debt repayment of 457 million. We remain focused on balancing our investment in growth against returning capital to shareholders while maintaining a strong balance sheet.
As Ed mentioned, we are very pleased with the plan to design and the robustness of the design and the performance so far and the insights and lessons from line one.
We translated that to align to and as we started feeding line two in August .
We were up at making copper within less.
Less than a month, so very excited about that part.
And that's part of the commissioning when we.
Took line to down to rework the mills check the gap in the air shedding on.
Jonathan Price: With that, I'll turn it back over to Jonathan. Thanks, Crystal.
The motors, we also took the opportunity to make some adjustments to the plant.
Jonathan Price: Before I wrap up, I want to provide an update on separation. With responsible value creation as our North Star, we continue to engage with the number of parties that have expressed interest in our still-making coal business. We are evaluating a range of potential options guided by several objectives. Based on extensive shareholder feedback throughout this process, one of our core objectives is to achieve a full separation of our base metals and still-making coal businesses.
Theyre, not conveyors and shoots and everything else and it's that reliability of the little things that are that has been our focus not the design and the throughput of each of the units in the plant. So we don't see anything that prevents us from getting.
Two design rates and in fact after we started it up after that shutdown we have had.
Bob design rates on each of the lines and of the plants together.
Jonathan Price: This is key to unlocking the value of our unrivaled copper growth portfolio. We will ensure Teck is well capitalized and positioned to pursue our copper growth potential and deliver stronger returns to shareholders while maintaining a strong balance sheet. At the same time, we aim to realise the full value of our still-making coal business for our shareholders. An important consideration will be the certainty of achieving separation, including receipt of the required regulatory approvals.
Over 140, <unk> hundred 43000 tonnes a day.
We have achieved that.
And so really the to answer your question it is the.
The reliability and making sure that the small shutdowns.
Our appointed and were making great progress on that.
With respect to mine operations, we have had our target numbers irregularly so really the autonomous fleet is operating really well the crusher is.
Is not a bottleneck at all.
Jonathan Price: And it is also critical that the transaction allows us to maintain social and environmental commitments to stakeholders in the Alt Valley. Overall, the Board and Special Committee are pleased with the progress we have been making. Separation remains a priority, and we are moving through the process as expeditiously as possible. Driving organic growth through development of our copper project pipeline remains central to our value creation journey.
And as we had mentioned on the tailing side.
The return water system.
As part of.
The water recovery and the dilution water for fans is operating really well the sand quality quantity is within spec and are we are you know.
That's been Derisked as well so just so the team is really energized.
Adding records every regularly we would make another record on our journey towards full wrap up and its fast reliable delivery that'd be hope to achieve by year end.
Jonathan Price: Looking at slides 16, we have made meaningful progress on our near-term development projects during the quarter. We furthered the feasibility studies for San Nicholas and the Crvada Blanca Mill expansion project, and we completed the feasibility study for HPC 2040 in Q3 with the submission of the project Environmental Assessment in October. Looking forward, we are targeting key milestones for these projects in the fourth quarter, including completion of the feasibility study for QBME, submission of the MIAR Permit Application for San Nicholas.
Great. Thank you for taking my questions.
Thanks Nelson.
The next question comes from Chris <unk> with Jefferies. Please go ahead, Hi, hi, Thanks for taking my question I just wanted to ask about sorry back on QB two on the on the Capex budget. There. So the $8 six to $8 8 billion dollar Capex guidance is for the project and then you have.
This ramp up Capex and then you also have the operating question, presumably the Cabo sales that you're making.
Jonathan Price: And commencement of detailed engineering for Zafra Nal. As shown on slide 17, we have an unrivaled suite of copper growth opportunities, diversified by geography, scale, and time to development. There is significant work underway to advance development of each of these projects, including resource definition, engineering and design, permitting and stakeholder engagement. And we have de-risk project delivery financially and operationally through a partnership approach, such as in the case of San Nicholas. The projects we have in place double our copper production in the near-term, with the potential to deliver 1 million tons of annual production by the end of the decade to drive substantial new intrinsic value.
In the normal course of business the offsetting costs that are expensed and not capitalized. So I'm trying to first understand exactly what is included in the ramp up Capex and then secondly, do you have a guidance of what that ramp up cash capex will be before all the costs are ultimately expense because I'm not sure if that ramp up capex was ever guided to earlier on.
And the project it seems like that sort of came.
Came out of nowhere and its adding to the overall capex for the projects I'm just trying understand what comprises that and what that number should ultimately get to before it ends. Thank you.
Yeah. Thanks for the question, Chris I'm going to hand, you over to Crystal on this one given the you know the relation to the <unk> treatment of these costs during ramp up so over to you crystal.
Yes.
Thanks, Chris I think maybe I'll take your question in a couple of pieces have you sort of frame that I think the first just being that change and I for off but now requires us to obviously recognize.
Jonathan Price: In prioritizing our growth options, we take into consideration multiple investment criteria including strong financial returns, balance sheet capacity and financing options, project readiness, project development capacity, and the social, political and environmental context, and importantly, each of these projects will have to compete for capital with the rest of the business and generate strong returns. While permitting is a major gating factor in determining potential sanction dates, we are largely in control of project timing, and we will continue to apply our discipline capital allocation framework that balances growth with returns to shareholders.
Through earnings as we sell products that we've done that in.
In the third quarter as we had on sales volume countries. So that those amounts are are in the P&L and you can see see what our margins are and you can see the breakdown in our AR in our mine operations reporting that we can create in the MD&A.
And then in the context of the the ramp up capital during a time, where we're ramping up operational rates too to designed capacity, we're trying to get to a minimum a minimum.
The minimum threshold and at that time, we're incurring costs to operate the assets, but we aren't producing at the levels, where are where we expect to be producing on sunshine not time, we capitalize those costs. If we were producing at higher levels. The cost would be going into inventory and then and then going through the P&L.
Jonathan Price: In closing, on slide 18, this is a very exciting time for tech as we continue our pursuit of responsible value creation for our shareholders. We are continuing to evaluate options for a separation that would realize fair value for our world class steelmaking coal business and unlock the full potential of our base metals business. And we continue to make significant progress against our copper growth strategy with the ramp up of QB2 and advancements in our near-tim development projects.
We havent guided to that amount just given that obviously the ramp up is a is ongoing.
Going in and it's a hard number to predict but I can say that as we get to higher levels of production. The amounts that we capitalized in that ramp up capital bucket or are lower and so I expect them to come down in the fourth quarter compared to what was capitalized in the third quarter and and.
Jonathan Price: Guided by our capital allocation framework, we are committed to balancing our opportunities for growth with financial resilience while providing cash returns to shareholders. At the same time, we are focused on execution and ensuring we pursue responsible value creation for shareholders.
As we get to the end of the year and we're at full production rates, we won't be seeing any further amounts capitalized in that bucket. So not amount has peaked and I expect that's going to come down.
Unknown Shareholder: Thank you, operator, please open the line for questions. Certainly to join the question Q, please press star then one on your touchtone telephone. You will hear a tone acknowledging your request.
Over the rest of the year.
Does that answer.
Well I guess, if if you're operating in the asset and you're selling copper.
I'm not sure what I'm, a little intrigued as to why expenses would then be capitalized if theyre not.
Unknown Shareholder: 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 headset before pressing any keys.
If they were associated with actually operating the asset until in copper I mean, what exactly comprises that capex is it stripping is it is it is an investment in the infrastructure and what exactly is going to that bucket. It's the it's all the cost of operating those assets until you reach a minimum operational thresholds so any costs associated with the products the install.
Orest Wowkodaw: If you wish to remove yourself from the question Q, you may press star then to the first question comes from oris walk it out with Scotia bank. Please go ahead. Hi, good morning.
Is going into your into your cost of sales number.
Jonathan Price: Jonathan will follow up questions if I could on the plan coal separation. I mean, obviously this has been going on now for some time. Can you give us a better idea of where you are in that process? Like are we close to the finish line or do you think this could just take a lot longer given more interested parties coming to the table? Could it spill it next year? Hi, Iris. Thanks.
So none of the costs associated with the sales are going so sorry, so the cost associated with the sales are going into expense going into capex going into extend that's right into cost of sales on there on the income statement.
Okay.
I'll just I'll follow up offline. Thank you for that I appreciate it okay.
Thanks, Chris Yeah. The answer is our accounting yeah, I think so.
Jonathan Price: Thanks for the question. Look at you. We're making very good progress here. I'm very happy as to where we are at present. We have a competitive process, which is the most important thing here to ensure we have options ahead of us to realise a good outcome. As I've mentioned a couple of times recently, I believe we'll be in a position to make a decision before the end of the year. That haven't changed.
Take the next question please.
The next question comes from Bryce Adams with CIBC. Please go ahead.
Hi, good morning, and thanks for taking my question, it's one more on the ramp up.
So the low end of QB two guidance for the concentrate at 80000 tonnes of copper and we are guided to the low end. So that implies Q4 production of just under 60000 tons.
Jonathan Price: The key thing for us is to ensure we make the best decision here possible rather than rush the process. Yes, but as I said, we're well positioned right now. We're happy with the level of competition we have. And I'm confident we can get a good outcome for Shales.
What from the ramp up so far gives you confidence that that's possible.
<unk> thousand per quarter, it's not the full run rate, but it's getting closer to it so.
Looking for some more color on your Q4 expectations for the ramp up.
Jonathan Price: Okay, and just as a follow-up, you spoke to the fact that certainty of achieving separation is a key criteria here, including regulatory approval. Do you think that a partial sale would be easier from a regulatory approval perspective than a full sale? Okay, I think every, you know, every different option here has its, has its unique characteristics in, in terms of what that means from an approvals perspective. You know, the overarching focus here is on the delivery of shareholder value.
Yeah. Thanks, Bryce backed wishes that on that one thanks rice. So as I mentioned in early in Q4, we did the modifications and we have been running well since then and really it's a ramp up from October getting closer in November and finally getting to pretty much full rates by the end of the year.
One is one is that throughput aspect, which we are relatively bullish on and then the other is the recovery I recoveries have been have been pretty strong as well and as we ramp up all our analyzers and controlled systems now which is we are in the process of doing.
Jonathan Price: You know, that has to come first and foremost in considering that delivery of shareholder value. Of course, we have to consider the certainty of execution and the risks associated with any transaction. You know, the, the requirement for regulatory or other approvals is, is a function of the, the nature of any transaction. And ultimately, we will do what we believe is in the best interest of our shareholders, having regard for those regulatory and approval requirements.
Actually this week.
And then moving forward.
We're looking at some good gains on recovery as well and of course, the last factor being grade.
Based on our mine sequence.
Looking in good shape, there and so with those three things.
We think we'll be able to hit that the P 859000 tons.
Yeah, I think it's also worth noting that it won't be it won't be a straight line through the next two months at a sort of week on this weird, we'd be expecting production rates due to improve into the end of the year.
Jonathan Price: Okay, thank you and one more bite to squeeze it in just if you decide to do the partial fail option, would it be your goal to put control of EVR into the public market or control with an owner. Okay, I won't be specific on that, or at this point in time, I mean, I think, you know, the, we've discussed the range of options that we have before us here, you know, with a, with a full fail at one end of the spectrum and a, in a partial sale and a spin at the other end of the spectrum with the latter providing ongoing exposure to our, to our shareholders in respect of both the filmmaking coal market, the fundamentals of which are very attractive going forward.
Yep got it okay. Thanks for that looking forward to the Q4 update so I think if you get that 59.
60000 tonnes in Q4, that's a good set up for for next year.
So the rest of my questions are answered that's it for me. Thanks, so much.
Thanks Bryce.
The next question comes from Bill Peterson with Jpmorgan. Please go ahead.
Yeah, Hi, good morning, Thanks for taking my questions a lot of questions about kidney to Elk Valley had been answered but wanted to talk more about.
Near term development projects, So I guess first one.
Jonathan Price: And of course, a quality high margin business like EVR, you know, ultimately, the, you know, the specifics of any transaction will be a subject, you know, of the conclusion of this process. So, so I won't say more on that now, other than as I mentioned before, we're happy with the options in front of us and, and we believe we're well set to drive a competitive outcome.
When do you expect the project environmental assessment for the mine extension for Highland Valley to be approved and hoping to get a bit more color on the expectations for the permitting and feasibility studies for the for the near term growth projects, such as chemical <unk> and so forth.
Unknown Shareholder: Thank you very much.
Yeah. Thanks for that question Bill Us, although I'll just start with which is out on the H P. C pace and then I'll hand, you over to Tyler Mitchelson R. S. V. P of responsible for copper growth to talk a bit more about the other projects in the portfolio and their status.
Liam Fitzpatrick: Thanks, or is the next question comes from Liam, this Patrick with Georgia bank, please go ahead. Morning, Jonathan, just a couple on, on QD2, it's clearly a hefty capex increase given you only reguided earlier this year, and we're only talking about a three month delay for two parts of the project. So the question is, were these issues not largely loan known about earlier in the year, and can you outline what the major component is behind this increase.
Liam Fitzpatrick: And the follow up kind of links to that and your future growth strategy, because clearly a lot of it is based around, you know, the next crop of copper project. So what sort of changes, are you making or have you made to ensure that we're not going to be faced with similar issues in the future. Thank you. Thanks for the questions, Liam.
Similar on the Highland Valley as we said we were able to submit our E.
It was a long process and it was really quite robust and we do expect approval by the end of 2024 before the end of 2024.
And then of course there'll be a decision for the board on sanctioning that mine life extension.
Okay. Thanks for that Tyler.
Tyler.
Can you can you handle the bounds of the question. Please.
Sure.
Look I think.
The key near term projects that you're starting to sound Nicholas.
In Mexico.
Looking through the feasibility study as we speak and we're targeting to finish that in the first half of 'twenty 'twenty four.
Jonathan Price: I'll come back to the second question in a moment, and I'll hand off the first question to Red Konger. Our president's in chief operating officer, just to preface that, I will say, you know, the issues that have caused us to reguide the QB2 capex as we have done today are issues that arose in the third quarter, and there are issues that created impacts to both schedule and costs, but I'll hand over to Red to unpack that in greater detail. Yeah.
Permit paper.
Paperwork and everything's been prepared with just doing a lot of stakeholder engagement right now.
Ensuring that we've got the right things lined up before we submit the claim to be anticipate putting that permits in in Q4 of 2023.
<unk> are now working through the Capex and Opex up there with a little bit more engineering, we should have that.
First part of 'twenty 'twenty four we do have the permits in place for that one but that isn't really at 23 next step from a permitting perspective, exactly who would be the construction permit which we need to do a bit of engineering for the intent is we would have.
Harry Conger: Morning, Liam. We are focusing on delivering reliable and robust copper circuit. I mean, that is that is first and foremost in our in our actions and several unknowns. Presented themselves during the third quarter. Let me give you a couple examples of those and what we had to do to address them. We commissioned the tailings return water facility early in the third quarter. And we found that all 16 of these huge tailing water return pumps had an internal manufacturing defect that evidence only when they were operating at full level, all of the pre-object testing and etc was was unable to detect this this default.
Apply for that mid 2024.
And then the other near term one that needs to be any progressing the feasibility study we should be done that in the fourth quarter of this year.
Still working through the through the permitting process there as well.
Harry Conger: So once, you know, once we got them up and running at full load, they were overheating. So we, you know, we had to do discovery work to understand what what that was. We had two responses there. We had to run them at at lower rated capacity to prevent the overheating. And then once, once we discovered what the defect was in the original casing, we had to take out each pump, send it down to a machine shop, have it modified per design specs, then bring it back up to the site, get them installed again.
So a lot of the other longer dated projects, we're doing some of the early work on baseline work and working through some of the.
Technical aspects of the early stage study work on that.
But those are the key near term projects were working through.
That answers the question Okay.
Yeah, Thanks for the update and I guess.
More on the near term working capital. So how should we think about the cadence through the remainder of this year and into next year excuse me two more reps more meaningfully I guess are you still expecting to build for the year.
Krystal can you pick up that one plays on working capital for QB two.
Yeah sure thing. So I think we are at the working capital levels, we expect to be obviously, we're building.
Some inventories on site as we produce and where we move things into into sales, but but I don't expect there to be a material changing in working capital outside of our normal sort of timing of sales and and accounts payable.
Harry Conger: And, you know, I'm happy to say they're they're all running appropriately now. So that that fits has has cured the problem. But, you know, there's there's a major system where you essentially had to build it twice and and do some of the manufacturing on the on the pumps that, you know, should have arrived to us in in working order and ready to go. So that that was a major unplanned piece of work for us.
I think what we're looking to kind of achieve about a $400 million level there.
Okay, yeah, thanks for that.
Thanks Bill.
The next question comes from Brian Macarthur with Raymond James. Please go ahead.
Hi, Good morning, My my two questions I apologize on QB two at QB as well. So just my first one was sort of a last question just crystal that incur.
Harry Conger: And of course, you take resources off of other planned work that you had during the quarter to to do that rework. So that's that's one example of something that we, you know, discovered and addressed and and successfully completed. Additionally, the last jetty pile that we're drilling out in the in the pork area of the drill bit failed subsurface in the ocean floor took us two months to to get that unit out of the ground and out of our way.
Increase in Capex them through all the accounting.
Does that include some of that working capital because originally there was a you know there's a capital cost investment and then there was going to be the 400 million working capital is that working capital on top of the new.
Guidance or how do I think about that and I guess it gets a little bit back to Chris's question.
So the $400 million of working capital not included anything in ramp up ramp up capital and it's always been the amount that we've we've communicated so there isn't a change in that amount based on what we communicated today.
Harry Conger: We were unable to drill the pile in an alternate location because of the critical nature of the load bearing requirements there. So that, you know, that was just something you had to power through and get done. And, you know, no way we could could forecast that or know that that was going to occur. And that has delayed the port from, you know, completion from the end of this fourth quarter into the end of first quarter of next year.
Okay, great. Thanks, and my second question goes back Jonathan you talked about permitting being a challenge and we talked a little bit about QB Ami.
Spansion there wasn't report I think Les earlier this week in the tire market region sort of recommending against expansion does that can that impact the timing of your feasibility for that expected in Q4 or I don't know what you can comment on that situation.
Yeah. Thanks for that question, Brian Yes, you know that there was a report issued recently with respect to the the permitting process.
Harry Conger: We've hired two additional contractors to work on completion of other offshore areas, mooring boys, et cetera, offshore. So those again, those are scheduled delays overhead continues, you have to hire more contractors to cover in behind and, you know, significant costing prices associated with that, and then we have a variety of claims that contractors have submitted that are associated with cost that they believe they've incurred due to owner directed changes in in work plans.
That process is ongoing there hasnt been a decision taken yet I'm you know I would say that you know as I mentioned before is sort of the normal course of the permitting is of major projects.
Your question around the feasibility no it won't impact that we continue to progress the feasibility study and expect to have that done in the current quarter.
Great. Thanks very much.
Thanks, Brian .
I will now hand, the call back over to Jonathan priced for closing remarks.
Thank you operator, and thanks to everyone for joining us on the call today as I mentioned, we're thrilled to be in Chile, and officially opening QB. Two this week, which is a momentous event for Teck, we look forward to doubling our consolidated copper production as it ramps up to design throughput and recovery rates as well as to our next phase of copper growth beyond that.
Harry Conger: So we've got a significant amount of work that we need to do to review all those claims, reconcile those and you know determine what what settlements are appropriate. But in order for you know, for us to be complete and truly assess the full impact of that, we've put all of those claim figures into the forecast now, even though we know some of them may may not be settled for exactly what was applied for.
<unk> as always please reach out to Fraser and our IR team. If you have any further questions. Thank you all very much and have a good day.
This concludes today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
Harry Conger: This is all of this rework, et cetera, is intentionally delayed the molly plan. So that you know again in preference to the reliability of the copper circuit and you know that approach has served us very well. We're seeing substantial improvements month to month in plan throughput and performance and really very excited about how the plan is performing. But the future holds for the performance of that plan. Yeah, thanks, thanks Red and just you know to sort of reiterate there Liam, you know, as we said the only major areas of construction outstanding now are the molly plants and the port in the guidance that we've provided today we have included all known risks as Red has said and we've included those risks pre any mitigation.
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Harry Conger: And of course, we've included some allowance in here for unknown risks that we do believe that the guidance we put forward today will will capture all remaining capex through to the completion of the project at this stage.
Jonathan Price: So your second question on on future growth and implications here. Firstly, of course, you know, we will undertake a detailed lessons learned process from from the QB2 experience and make sure that those lessons and assumptions are carried forward forward to future projects. You know, both in terms of the the capital assumptions we make, but but also the how those projects are delivered, you know, one example that we've referenced many times through the course of this project has been the challenges we've had with labor productivity.
Jonathan Price: Now, some of that, of course, you know, could be a function of of COVID and the hangover from COVID and some of that, of course, could be a function of the environment in which this project has been built, you know, in at 44 hundred meters. It's a challenging place to deliver a major project, but we will take those assumptions forward and make sure that they're reflected in future projects. Otherwise, I think if you look at the projects in our portfolio, it's this worth noting that, you know, they are an order of magnitude simpler in terms of their complexity, in terms of their scale, and in terms of their scope.
Jonathan Price: You know, when you look at QB2 and the full scope of that, it's really five or six major projects that are rolled into one with port, diesel pipelines, mine concentrated tailings, you know, all at world class scale. The other projects you see in the pipeline here, some of them with capital costs, you know, closer to a billion dollars, you know, reflected very different, very different propositions of the company. But that said, there's a lot to learn there for QB2. We'll make sure we understand those lessons well before we sanction our next project.
Liam Fitzpatrick: Thank you for the colour.
Liam Fitzpatrick: If I'm allowed, a very brief follow up, just on your EVR comments. I just wanted to make sure I'm understanding it correctly because you mentioned execution risk was key. It's kind of what's being implied here is that a kind of I guess a spin of some form is the lower execution routes or are you just kind of outlining that it's basically a call between the execution risk on a spin versus a cell to a single party.
Liam Fitzpatrick: So look, I think Liam it intended to be a general comment. It's not intended to point at anything, anything specific here, you know, when when assessing, you know, the creation of value for shareholders, you've got a sort of, you know, look at that in the broader sense. And of course, you know, the certainty or the risk to delivery of that value is a key consideration and, you know, risks and risks and approvals and those sorts of things can manifest in a number of ways.
Liam Fitzpatrick: So it's not intended to be a direct comment to favor one option over another just to sort of give some some colour to the thought process here that, you know, headline headline price and headline value is important, but as is the certainty of the delivery of that value. Thank you.
Unknown Shareholder: Thanks Liam.
Dalton Baretto: And the next question comes from a Dalton bretto was kind of corgenuity. Please go ahead. Thank you.
Jonathan Price: Good morning Jonathan and team. I want to say on that on that separation topic of conversation there. And I guess my first question Jonathan is given where coal prices are as well as the implied valuation on the the BHP white haven deal. Has the thinking on valuation between you and your potential buyers changed at all relative to what was on the table earlier this year? Thanks for the question, Dalton. Look, I mean, it's fair to say that, you know, I think the view of the market has evolved, you know, since February when when we announced our prior separation.
Jonathan Price: You know, the outlook, the outlook for still making coal has definitely improved. I think a, you know, a recognition here of the favorable structure for that market going forward with, you know, now I think a greater understanding of the long term need for the role of blast furnace is in the production of steel and limited new met coal supply expected to come to the market. And of course, the, you know, the growth of blast furnace capacity in India as well is something that is particularly interesting for those structural dynamics.
Jonathan Price: So I think the view of the market has changed long term, you know, well for spot prices is very encouraging right now, you know, we look through that and we look to the long term assumptions here that underpin the business. I think as well, you know, post the discussions we had earlier in the year regarding separation, the appreciation for EVR as a long life high margin producer of very high quality, hard-coating coal has increased in the market as well.
Jonathan Price: So look, I think there has been a move in expectations, you know, over the over the last six or eight months as a result of those two factors. And of course, you know, in discussions with our shareholders, which have been ongoing throughout that period, you know, they convey to us their expectations here as well. And that's something, of course, we take on board as we think through the options in front of it.
Jonathan Price: Thanks for that, Jonathan. And then just maybe as a follow-up, in terms of getting a deal done before year end. If you do opt for a partial sale as well as a spin co, do you anticipate those happening together, or could we see an announcement on a partial sale by year end? And then just some sort of a lag on the spin co that will allow you to recoup some of these high coal prices?
Jonathan Price: I think, you know, Dalton, our proposal here is, you know, if and when we step forward with a transaction, we would expect a step forward with a complete solution for the separation of EVR from the base metals business. Great, thanks for that.
Jonathan Price: And there's maybe one last one on QB2.
Jonathan Price: As you wrap it up, where is the bottleneck currently? Is it at the mine? Is it at the mail? Is it at the supporting infrastructure? And what is the primary hurdle to get the full design capacity?
Sherhzad Bharmal: Yeah, Dalton, I'll hand you over to Shazad Balmala RSVP if the copper business unit here who is responsible for the ramp up and future operation of QB2. Thanks, Jonathan. You know, as Red mentioned, we are very pleased with the plan to design and the robustness of the design and the performance so far. And the insights and lessons from line one, we translated that to line two and as we started treating line two in August, we were up and making copper within, you know, in less than a month.
Sherhzad Bharmal: So very excited about that part. And as part of the commissioning, when we took line two down to, you know, re talk the mills, check the gap and the air settings on the motors. We also took the opportunity to make some adjustments to the plant, you know, in our conveyors and shoots and everything else. And, you know, it's that reliability of the little things that that has been our focus on not the design and the throughput of each of the units in the plant.
Sherhzad Bharmal: So we don't see anything that prevents us from getting to design rates. And in fact, after we started up after that shutdown, we have hit above design rates on each of the lines and of the plant together. You know, over 140, 140, 3,000 tons a day, we have achieved that. And so really to answer your question, it is the reliability and making sure that the small shutdowns are avoided and we are making great progress on that with respect to mine operations.
Sherhzad Bharmal: We have hit our target numbers regularly. So really, you know, the autonomous fleet is operating really well. The pressure is is not a bottleneck at all. And, and as Red mentioned on the tailing side, the return water system, which is part of, you know, the water recovery and the dilution water for sands is operating really well. The sand quality quantity is within spec and we're, you know, that's been de-risk as well.
Sherhzad Bharmal: So the team is really energized, you know, heading records, you know, every regularly, we make another record on our journey towards full ramp up. And it's this reliable delivery that we hope to achieve by year end.
Unknown Shareholder: Thank you for taking my question.
Chris LaFemina: The next question comes from Chris LaFemina with Jeffries. Please go ahead. Hi, thanks for taking my question. I just wanted to ask about, sorry, back on QB2 on the CAPEX budget there. So the $8.68.8 billion CAPEX guidance is for the project and then you have this ramp up CAPEX and then you also have the operating cost and presumably that the copper sales and making in the normal course of business, the offset and cost there are expense did not capitalize.
Chris LaFemina: So I'm trying to first understand exactly what is included in the ramp up CAPEX. And secondly, do you have a guidance with that ramp up CAPEX will be before all the costs are ultimately expense because I'm not sure if that ramp up CAPEX was ever guided to earlier on in the project. It seems like that sort of came out of nowhere and it's adding to the overall CAPEX to the project. So just trying to understand what comprises there. And that number should ultimately get you before it ends. Thank you. Yeah, thanks for the question, Chris.
Crystal Prystai: I'm going to hand you over to Chris on this one, given the relation to the IFRS treatment of the cost during ramp up. So over to you, Chris. Thanks, Chris. I think maybe I'll take your question in a couple pieces as you sort of framed it. I think the first just being the change in IFRS that now requires us to obviously recognize cost through earnings as we sell products. So we've done that in in the third quarter as we've had sales volume come through so that those amounts are are in the PNL and you can see see what our margins are and you can see the breakdown in our in our mine operations reporting that we've got.
Crystal Prystai: We've included in the MDNA and then in the context of the the ramp up capital during the time where we're ramping up operational rates to to design capacity. We're trying to get to a minimum minimum threshold and at that time we're incurring costs to operate the assets, but we aren't producing at the levels where where we expect to be producing. And so during that time we we capitalize those costs. If we were producing at higher levels, those costs would be going into inventory and then and then going through the PNL.
Crystal Prystai: We haven't guided to that amount just given that obviously the ramp up is is ongoing and it's a hard number to predict, but I can say that as we, you know, get to higher levels of production. Then the amounts that we capitalize in in that ramp up capital bucket are lower and so I expect them to come down in the fourth quarter compared to what was capitalized in in the third quarter and and as we get to the end of the year and we're actual production rates. We won't be seeing any further amounts capitalized in that bucket. So that amount has pieced and I expect it's going to come down over the rest of the year.
Chris LaFemina: So if you're operating in the asset and you're selling copper, I'm a little bit confused as to why expenses would then be capitalized if they're not, if they're associated with actually operating the asset and selling copper. I mean, what exactly comprises that capex is it stripping is it is an investment in the infrastructure? What exactly is going to that bucket? It's that it's all the cost of operating those assets until you reach a minimum operational threshold.
Chris LaFemina: So any cost associated with the products being sold is going into into your cost of sales number. Sir, none of the costs associated with the sales are going into expense or going into cadets. Sir, they're going into expense. That's right, into cost of sales on the income statement. Okay, thanks. Maybe I'll just apologize offline. Thank you for that. I appreciate it. Thanks, Chris.
Unknown Shareholder: Yeah, the answer is accounting. I think so.
Unknown Shareholder: We'll take the next question please. The next question comes from Bryce Adams with C-A-B-C. Please go ahead. Good morning, and thanks for taking my question. It's one more on the ramp up. So the low end of QB2 guidance for the concentrator 80,000 tonnes of copper, and we are guided to the low end. So that implies Q4 production of just under 60,000 tonnes. What from the ramp up so far gives you confidence that that's possible.
Unknown Shareholder: 60,000 per quarter is not the full run, right? But it's getting closer to it. So just looking for some more colour on your Q4 expectations for the ramp up. Yeah, thanks, Bryce. Packish is that on that one. Thanks, Bryce. So as I mentioned in early in Q4, we did the modifications and we have been running well since then. And really, it's ramp up from October, getting closer in November, and finally getting to pretty much full range by the end of the year.
Unknown Shareholder: And you know, one is one is the throughput aspect, which we are relatively bullish on. And then the other is the recovery. Our recoveries have been have been pretty strong as well. And as we ramp up all our analysers and our control systems now, which is we in the process of doing actually this week. And then forward, we're looking at some good gains on recovery as well. And of course, the last factor being great.
Unknown Shareholder: You know, based on our mine sequence, we're looking in good shape there. And so with those three things, we think we'll be able to hit that 58,000 tonnes. Yeah, I think it's also worth noting that it won't be a straight line through the next two months here that sort of week on it would be expecting production rates to improve into the end of the year. Yep, got it. OK, thanks for that.
Unknown Shareholder: Looking forward to the Q4 update. I think if you get that 59, 60,000 tonnes in Q4, that's a good set up for for next year. So the rest of my questions are answered. That's it for me. Thanks so much. Thanks, Bryce.
Bill Peterson: The next question comes from Bill Peterson with JP Morgan. Please go ahead. Yeah, hi, good morning. Thanks for taking my questions. A lot of questions on QV2 and Elk Valley have been answered. But we're going to talk more about, you know, near term development project.
Shazad Bharmal: So I guess first, you know, when, when do you expect the project environmental assessment through the mine extension for Highland Valley to be approved? And hopefully get a bit more color on the expectations for the permitting and feasibility studies for the, for the near term growth project, such as Santa Clara, QVM, and so forth. Yeah, thanks for that question. Bill, I'll just start with with Shazad on the HVP piece, and then I'll hand you over to Tyler Mitchell from RSVP of responsible for copper growth to talk a bit more about the other projects in the portfolio in this day.
Shazad Bharmal: So, Bill on Holland Valley, as we said, we were able to submit our EA, it was a long process and it was really quite robust and we do expect approval by the end of 2024 before the end of 2024. And then of course, there will be a decision for the board on sanctioning that my life extension. Okay, thanks Shazad, Tyler. Can you, can you handle the bounds of the question? Sure, thanks.
Shazad Bharmal: Look, I think, you know, of the key near-term projects, if you start to stand, Nicholas, down at Mexico, working through the feasibility study as we speak, and we're targeting the first half of 2020 for war, the permit paperwork and everything's been prepared. We're just doing a lot of stakeholder engagement right now. Ensuring that you've got the right things lined up before we submit the permit to be anticipated putting that permit in 2024, 2023.
Shazad Bharmal: On Zafra now, working through the CAPEX and off-ex update with a little bit more engineering, we should have that first part of 2024. We do have the permit in place, so that one we've got that in May of 2023. Next step, I'm currently prospective for Zafra now. The Peru would be the construction permit, which we need to do a bit of engineering for and the intent is to apply for that mid 2024.
Shazad Bharmal: And then the other near-term one is QVME, progressing the feasibility study. We should be done that in the fourth quarter of this year, and still working through the through the permitting process there as well. So a lot of the other longer dated projects were doing some of the early work on baseline work and working through some of the technical aspects of the early stage study work on those of the key near-term projects we're working through. Yeah, thanks for the update.
Crystal Prystai: You know, I guess more on the near-term working capital. So how should we think about the cadence through the remainder of this year and then the next year as QV2, you know, ramps more meanfully. I guess are you still expecting a bill for the year? Crystal, can you pick up that one place on working capital for QV2? Yes, sure. Thanks, Bill. I think we are at the working capital levels. We expect to be obviously we're building some inventories on plate as we produce and we're we move things into into sales, but I don't expect there to be a material change in in working capital outside of our normal sort of timing of sales and accounts payable. I think we're looking to kind of achieve about a $400 million level there. Okay, yeah, thanks for that. Thanks, Bill.
Brian Macarthur: The next question comes from Brian MacArthur with Raymond Jane. Please go ahead.
Crystal Prystai: Good morning, my questions I apologize are in QV2 as QV as well. But just my first one was sort of the last question. Just crystal that increase in CAPEX for all the accounting. Does that include some of that working capital? Because originally there was a, you know, there's a capital cost investment and then there was going to be this 400 million working capital. Is that working capital on top of the new guidance or, or how do I think about that?
Crystal Prystai: And I guess it gets a little bit back to Chris's question. It's so before on our million of working capital is not included in in ramp up ramp up capital and it's always been the amount that we've we've communicated so there isn't a change in that amount based on what we've communicated today.
Unknown Shareholder: Okay, great. Thanks.
Jonathan Price: And my second question was back. Jonathan, you talked about permitting being a challenge and we talked a little bit about QB, Emmy expansion. There wasn't report, I think, earlier this week in the tire of hockey region, you know, sort of recommending against the expansion. Does that can that impact the timing of your feasibility for that expected in Q4 or I don't know what you should comment on that situation? Yeah, thanks for that question.
Jonathan Price: Brian, yes, you know, there was a report issue recently with respect to the permitting process. That process is ongoing. There hasn't been a decision taken yet. You know, I would say that, you know, as I've mentioned before is sort of the normal course for the permitting of major projects. The your question around the feasibility, no, it won't impact that we continue to progress the feasibility study and expect to have that done in the current quarter.
Unknown Shareholder: Great. Thanks very much. Thanks, Brian.
Jonathan Price: I will now hand the call back over to Jonathan Price for closing remarks. Thanks. Thank you operator and thanks to everyone for joining us on the call today.
Jonathan Price: As I mentioned, we're thrilled to be in chilly and officially opening QB to this week, which is a momentous event for tech. We look forward to doubling our consolidated copper production as it ramps up to design throughput and recovery rates, as well as to our next phase of copper growth beyond QB to. As always, please reach out to Fraser and RIR team if you have any further questions. Thank you all very much and have a good day.
Unknown Shareholder: This concludes today's conference call. You may disconnect your lines.
Unknown Shareholder: Thank you for participating and have a pleasant day.