Q2 2019 Earnings Call

July 25, 2019

Ladies and gentlemen, thank you for standing by welcome to the Teck Resources Q2, 2019 earnings call. At this time all participants are in listen only mode. Later, we will conduct a question and answer session. This conference call is being recorded on Thursday July 20, Fiveth 2019, I would now like to turn the conference call over to Frazer Phillips Senior Vice President Investor Relations and strategic analysis. Please go ahead.

Jen: Ladies and gentlemen, thank you for standing by. Welcome to the Teck Resources Q2 2019 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. This conference call is being recorded on Thursday, 25 July 2019. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Teck Resources Q2 2019 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. This conference call is being recorded on Thursday, 25 July 2019. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks, very much and good morning, everyone and thank you for joining us protect second quarter 2019 results conference call.

Fraser Phillips: Thanks very much, Jen. Good morning, everyone, and thank you for joining us for Teck's Q2 2019 results conference call. Before we begin, I would like to draw your attention to the caution regarding forward-looking statements on slide two. This presentation contains forward-looking statements regarding our business. This slide describes the assumptions underlying those statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statement. I would also like to point out that we use various non-GAAP measures in this presentation. You can find explanations and reconciliations regarding these measures in the appendix. With that, I will turn the call over to Don Lindsay, our President and CEO.

Before we begin I would like to draw your attention to the caution regarding forward looking statements on slide two this presentation contains forward looking statements regarding our business. The slide describes the assumptions underlying those statements various risks and uncertainties may cause actual results to vary Teck does not assume the obligation to update any forward looking statement.

I would also like to point out that we use various non-GAAP measures. In this presentation you can find explanations and reconciliations regarding these measures in the appendix with that I will turn the call over to Don Lindsay, our president and CEO . Thank you Fraser and good morning, everyone. We're pretty excited here today Weve got a lot of good news to share so let's get going.

Donald R. Lindsay: Thank you, Fraser, and good morning, everyone. We're pretty excited here today. We've got a lot of good news to share, so let's get going. I'll begin on slide three with highlights from our Q2, followed by Ron Millos, our CFO, who will provide additional color on the financial results. We'll conclude with a Q&A session where Ron and I and additional members of our senior management team would be happy to answer any questions. We achieved a number of important milestones in the Q2 that have put Teck in a strong position moving forward. First, we updated our capital allocation policy and increased our share buyback to CAD 1 billion. We updated our capital allocation framework to reflect our intention to make additional cash returns to shareholders.

Don Lindsay: Thank you, Fraser, and good morning, everyone. We're pretty excited here today. We've got a lot of good news to share, so let's get going. I'll begin on slide three with highlights from our Q2, followed by Ron Millos, our CFO, who will provide additional color on the financial results. We'll conclude with a Q&A session where Ron and I and additional members of our senior management team would be happy to answer any questions. We achieved a number of important milestones in the Q2 that have put Teck in a strong position moving forward. First, we updated our capital allocation policy and increased our share buyback to CAD 1 billion. We updated our capital allocation framework to reflect our intention to make additional cash returns to shareholders. I'll speak to this in greater detail later, but we intend to supplement our base dividend with an additional amount of at least 30% of available cash flow through supplemental dividends and/or share repurchases. I note that a couple of analysts have already missed the fact that that 30% is on top of the base dividend.

I'll begin on slide three with highlights from our second quarter, followed by Ron Millos, Our CFO , who will provide additional color on the financial results I will conclude with a Q and a session where Ron and I, an additional members of our senior management team would be happy to answer any questions.

We achieved a number of important milestones in the second quarter that are put tech in a strong position moving forward.

First we updated our capital allocation policy and increased our share buyback $2 billion.

We updated our capital allocation framework to reflect our intention to make additional cash returns to shareholders I will speak to this in greater detail later, but we intend to supplement our base dividend with an additional amount at least 30% of available cash flow through supplemental dividends and share repurchases and I note that a couple of analysts have already missed the fact that that 30% is on top of the base dividend.

Donald R. Lindsay: I'll speak to this in greater detail later, but we intend to supplement our base dividend with an additional amount of at least 30% of available cash flow through supplemental dividends and/or share repurchases. I note that a couple of analysts have already missed the fact that that 30% is on top of the base dividend. Second, the BC government has endorsed the use of saturated rock fills to treat water at our steelmaking coal operations. We have begun construction of an expansion of the saturated rock fill at Elkview. We estimate that over the long term, saturated rock fills will significantly reduce capital and operating costs compared to tank-based active water treatment facilities of similar capacity. Third, we are accelerating our innovation-driven efficiency program, known as Race 21, to generate an initial $150 million in annualized EBITDA improvements by the end of 2019.

Don Lindsay: Second, the BC government has endorsed the use of saturated rock fills to treat water at our steelmaking coal operations. We have begun construction of an expansion of the saturated rock fill at Elkview. We estimate that over the long term, saturated rock fills will significantly reduce capital and operating costs compared to tank-based active water treatment facilities of similar capacity. Third, we are accelerating our innovation-driven efficiency program, known as Race 21, to generate an initial $150 million in annualized EBITDA improvements by the end of 2019. There'll be much more going on into the future. In addition to RACE21, in light of economic uncertainty and trade tensions, we are actively evaluating further cost reduction initiatives which can be implemented quickly in the event that commodity markets turn against us. These measures are part of our straightforward strategy of running our operations safely, efficiently, and sustainably to generate cash. Successfully executing our key projects and returning excess cash to shareholders.

Second the BC government has endorsed the use of saturated rock fill to treat water at our steelmaking coal operations. We have begun construction of an expansion of the saturated rock Philadelphia, we estimate that over the long term saturated rock pills will significantly reduce capital and operating costs compared to tank based active water treatment facilities have similar capacity.

Third we are accelerating our innovation driven efficiency program known as raised 21 to generate an initial $150 million in annualized EBITDA improvements by the end of 2019.

Donald R. Lindsay: There'll be much more going on into the future. In addition to RACE21, in light of economic uncertainty and trade tensions, we are actively evaluating further cost reduction initiatives which can be implemented quickly in the event that commodity markets turn against us. These measures are part of our straightforward strategy of running our operations safely, efficiently, and sustainably to generate cash.

There will be much more going on into the future.

In addition to raise 21 in light of economic uncertainty and trade tensions we are actively evaluating further cost reduction initiatives, which can be implemented quickly the event the commodity markets turn against us.

These measures are part of our straightforward strategy of running our operations safely efficiently and sustainably to generate.

Jen: Welcome to conferencing services. Please stay on the line

The conferencing services.

Donald R. Lindsay: Successfully executing our key projects and returning excess cash to shareholders.

Securing our QB two project and returning excess.

Jen: Thank you for calling. Which conference are you joining today?

Sure.

All English conference age we need today.

Donald R. Lindsay: We also had several additional highlights in Q2. We signed a $2.5 billion limited recourse project financing facility to fund the development of the QB2 project. We redeemed $600 million of outstanding 8.5% notes due in 2024 on 29 June, reducing our outstanding notes to just $3.2 billion, with no significant maturities for the next 16 years until 2035. Consistent with our capital allocation framework, we announced that we will not proceed with McKenzie Redcap extension at our Cardinal River Operations, and the operation will close in H2 2020. Critical path construction activities for QB2 are on track, and we are building considerable value for shareholders through the development of this world-class copper project.

Don Lindsay: We also had several additional highlights in Q2. We signed a $2.5 billion limited recourse project financing facility to fund the development of the QB2 project. We redeemed $600 million of outstanding 8.5% notes due in 2024 on 29 June, reducing our outstanding notes to just $3.2 billion, with no significant maturities for the next 16 years until 2035. Consistent with our capital allocation framework, we announced that we will not proceed with McKenzie Redcap extension at our Cardinal River Operations, and the operation will close in H2 2020. Critical path construction activities for QB2 are on track, and we are building considerable value for shareholders through the development of this world-class copper project. Finally, we were pleased to be recognized as one of the top companies in Canada for corporate citizenship, placing fourth on the Best 50 Corporate Citizens in Canada ranking.

Several additional highlights in the second quarter, we signed a $2.5 billion US limited recourse project financing facility to fund the development of the QB two project.

We redeemed 600 million use of outstanding 8.5% notes due in 2024 on June 29th reducing our outstanding notes to just 3.2 billion us with no significant maturities for the next 16 years until 2035.

And consistent with our capital allocation framework, we announced that we will not proceed with Mckenzie Red Kap extension at our Cardinal River operations and they operation will close in the second half of 2020.

Critical path construction activities for QB two are on track and we are building considerable value for shareholders through the development of this world class Copper project and finally, we were pleased to be recognized as one of the top companies in Canada for corporate citizenship, placing fourth on the best 50 corporate systems in Canada ranking.

Donald R. Lindsay: Finally, we were pleased to be recognized as one of the top companies in Canada for corporate citizenship, placing fourth on the Best 50 Corporate Citizens in Canada ranking. Looking at our capital allocation framework in greater detail, slide four shows how we think about it and prioritize our approach to capital allocation, which is designed to both position Teck for long-term value creation and growth, while returning cash directly to shareholders at the same time. The starting point for the assessment is the operating cash flow, which is first used to fund sustaining capital required to maintain our production levels in accordance with our long-term mine plans, including capitalized stripping costs. The second priority is to fund capital spending on committed enhancement and growth projects that are already approved by the board, such as QB2, Red Dog's VIP2 project, or Neptune terminal upgrades.

Looking at our capital allocation framework in greater detail slide four shows how we think about it and prioritize our approach to capital allocation, which is designed to both position tech for long term value creation and growth, while returning cash directly to shareholders at the same time.

Don Lindsay: Looking at our capital allocation framework in greater detail, slide four shows how we think about it and prioritize our approach to capital allocation, which is designed to both position Teck for long-term value creation and growth, while returning cash directly to shareholders at the same time. The starting point for the assessment is the operating cash flow, which is first used to fund sustaining capital required to maintain our production levels in accordance with our long-term mine plans, including capitalized stripping costs. The second priority is to fund capital spending on committed enhancement and growth projects that are already approved by the board, such as QB2, Red Dog's VIP2 project, or Neptune terminal upgrades. Contributions from partners and drawdown of project finance facilities are netted off in the calculation of capital allocated to this purpose.

The starting point for the assessment is the operating cash flow, which is first used to fund sustaining capital required to maintain our production levels in accordance with our long term mine plans, including capitalized stripping costs.

The second priority is to fund capital spending on committed enhancement and growth projects that are already approved by the board such as QB, two or Red dog's VIP to project or Neptune terminal upgrades.

Donald R. Lindsay: Contributions from partners and drawdown of project finance facilities are netted off in the calculation of capital allocated to this purpose. Capital is then used to fund the base dividend of CAD 0.20 per share. It may also be allocated to strengthen the capital structure through the repayment of debt or to build cash balances consistent with our long-stated objective of maintaining solid investment grade metrics and strong liquidity. I should say that at this point, we don't see a need for any further substantial decrease in notes outstanding, leaving more available cash for supplemental shareholder distribution. Our intention is to then distribute an additional amount of at least 30% of remaining cash flow to shareholders by way of supplemental dividends or share buybacks before taking on new major enhancement or growth projects.

Contributions from partners and drawdown of project finance facilities are netted off in the calculation of capital allocated to this purpose.

Don Lindsay: Capital is then used to fund the base dividend of CAD 0.20 per share. It may also be allocated to strengthen the capital structure through the repayment of debt or to build cash balances consistent with our long-stated objective of maintaining solid investment grade metrics and strong liquidity. I should say that at this point, we don't see a need for any further substantial decrease in notes outstanding, leaving more available cash for supplemental shareholder distribution. Our intention is to then distribute an additional amount of at least 30% of remaining cash flow to shareholders by way of supplemental dividends or share buybacks before taking on new major enhancement or growth projects. The allocation between dividends and buybacks will depend on market conditions at the relevant time, and we will consider additional distributions out of the proceeds of any asset sales on a case-by-case basis.

Capital is then used to fund the base dividend of 20 cents per share.

It may also be allocated to strengthen the capital structure through the repayment of debt or to build cash balances consistent with our long stated objective of maintaining solid investment grade metrics and strong liquidity I should say that at this point, we don't see a need for any further substantial decrease in notes outstanding.

Leaving more available cash for supplemental shareholder distribution.

Our intention is to then distribute an additional amount of at least 30% of remaining cash flow to shareholders by way of supplemental dividends or share buybacks before taking on new major enhancement or growth projects.

Donald R. Lindsay: The allocation between dividends and buybacks will depend on market conditions at the relevant time, and we will consider additional distributions out of the proceeds of any asset sales on a case-by-case basis. Of note, for example, we have already exceeded the 30% figure for 2019 by a considerable margin. The balance of remaining cash flow is available to finance further enhancement or growth opportunities, and if there is no immediate need for this capital for investment purposes, it may be used for further returns to shareholders or retained as cash on the balance sheet. On slide five, as I mentioned earlier, we are accelerating our innovation-driven efficiency program, Race 21, which was first introduced at our Investor and Analyst Day in April of this year. It is an integrated program that looks across the full value chain from mine to port.

The allocation between dividends and buybacks will depend on market conditions at the relevant time, and we will consider additional distributions out of the proceeds of any asset sales on a case by case basis.

Don Lindsay: Of note, for example, we have already exceeded the 30% figure for 2019 by a considerable margin. The balance of remaining cash flow is available to finance further enhancement or growth opportunities, and if there is no immediate need for this capital for investment purposes, it may be used for further returns to shareholders or retained as cash on the balance sheet. On slide five, as I mentioned earlier, we are accelerating our innovation-driven efficiency program, Race 21, which was first introduced at our Investor and Analyst Day in April of this year. It is an integrated program that looks across the full value chain from mine to port. RACE21 leverages existing proven technology to improve productivity and lower costs with a focus on delivering significant value by 2021.

Of note for example that we have already exceeded the 30% figure for 2019 by a considerable margin.

The balance of remaining cash flow is available to finance further enhancement or growth opportunities and if there is no immediate need for this capital for investment purposes. It may be used for further returns to shareholders or retained as cash on the balance sheet.

On slide five as I mentioned earlier, we are accelerating our innovation driven efficiency program raised 21.

Which was first introduced at our Investor and Analyst day in April of this year.

It is an integrated program that looks across the full value chain from mine to port.

Donald R. Lindsay: RACE21 leverages existing proven technology to improve productivity and lower costs with a focus on delivering significant value by 2021. By the end of 2019, we intend to implement initiatives that we expect will generate an additional CAD 150 million in annualized EBITDA improvements, primarily through the expansion of programs such as predictive maintenance, the use of mining analytics to improve cycle times, and processing improvements. We expect the one-time implementation cost of these initiatives will be approximately CAD 45 million in 2019, and that the benefits will be recurring thereafter. I should say the CAD 150 million is after the investment of CAD 45 million. A good example of this work is our Haul Cycle Analytics program. We currently track hundreds of data points related to the performance of our load and haulage fleet. For any human, this volume of data is simply too big to analyze.

Raised 21, leverages existing proven technology to improve productivity and lower costs with a focus on delivering significant value by 2021.

Don Lindsay: By the end of 2019, we intend to implement initiatives that we expect will generate an additional CAD 150 million in annualized EBITDA improvements, primarily through the expansion of programs such as predictive maintenance, the use of mining analytics to improve cycle times, and processing improvements. We expect the one-time implementation cost of these initiatives will be approximately CAD 45 million in 2019, and that the benefits will be recurring thereafter. I should say the CAD 150 million is after the investment of CAD 45 million. A good example of this work is our Haul Cycle Analytics program. We currently track hundreds of data points related to the performance of our load and haulage fleet. For any human, this volume of data is simply too big to analyze. By streaming this data to the cloud and applying advanced analytics techniques, we are increasing our ability to identify truck underperformance or poor road quality and other factors in near real time.

But by the end of 2019, we intend to implement initiatives that we expect will generate an additional $150 million in annualized EBITDA improvements primarily through the expansion of programs such as predictive maintenance the use of mining analytics to improved cycle times and processing improvements.

We expect the onetime implementation cost of these initiatives will be approximately $45 million in 2019 and that the benefits will be recurring thereafter, and I should say the $150 million is after the investment of 45 million.

A good example of this work is our whole cycle analytics analytics a program. We currently track hundreds of data points related to the performance of our load and haulage fleet for any human this volume of data is simply too big to analyze by streaming this data to the cloud and applying advanced analytics techniques, we are increasing our ability to identify truck underperformance or poor road quality and other factors in near real time.

Donald R. Lindsay: By streaming this data to the cloud and applying advanced analytics techniques, we are increasing our ability to identify truck underperformance or poor road quality and other factors in near real time. Reducing variability is the key to reducing costs in surface mining. Advanced analytics enables this reduction by targeting low-performing trucks to increase average speed without increasing maximum speed. In our steelmaking coal business alone, we expect to realize $14 million in annualized EBITDA gains by the end of this year based on a total investment of just $3 million. As we look ahead and advance our mine autonomy program, we will be able to further reduce variability in cycle time and capture even greater value. Another example is our predictive maintenance program. We also track millions of data points there in real time that monitor the health of our haul trucks.

Don Lindsay: Reducing variability is the key to reducing costs in surface mining. Advanced analytics enables this reduction by targeting low-performing trucks to increase average speed without increasing maximum speed. In our steelmaking coal business alone, we expect to realize $14 million in annualized EBITDA gains by the end of this year based on a total investment of just $3 million. As we look ahead and advance our mine autonomy program, we will be able to further reduce variability in cycle time and capture even greater value. Another example is our predictive maintenance program. We also track millions of data points there in real time that monitor the health of our haul trucks. As you can imagine, there is significant variation in this data due to differences in truck technology, equipment age, operating conditions, and dozens of other factors. This complexity, coupled with the sheer volume of data, makes it impossible for humans to analyze in anywhere near real time, which is what is needed to take predictive action.

Reducing variability is the key to reducing costs and surface mining advanced analytics enables this reduction by targeting low performing trucks to increase average speed without increasing maximum speed in our steelmaking coal business alone, we expect to realize $14 million in annualized EBITDA gains by the end of this year based on a total investment of just $3 million.

As we look ahead and advance our mine autonomy program, we will be able to further reduce variability in cycle time and capture even greater value.

Another example is our predictive maintenance program. We also track millions of data points. There in real time that monitor the health of our haul trucks as you can imagine there is significant variation in this data due to differences in truck technology equipment age operating conditions and dozens of other factors. This complexity coupled with the sheer volume of data. It makes it impossible for humans to analyze in anywhere near real time, which is what is needed to take predictive action.

Donald R. Lindsay: As you can imagine, there is significant variation in this data due to differences in truck technology, equipment age, operating conditions, and dozens of other factors. This complexity, coupled with the sheer volume of data, makes it impossible for humans to analyze in anywhere near real time, which is what is needed to take predictive action. By using machine learning algorithms, we are now able to effectively model and predict component failure with adequate lead time to allow it to be replaced as part of regularly scheduled maintenance. Reducing unplanned downtime is expected to create $20 million in annualized EBITDA improvements in 2019 in our steelmaking coal business alone, and that's at a cost of approximately $3 million. We are rapidly advancing RACE21. We expect to identify and implement further opportunities to improve the cost structure of our business or increase our productive capacity.

Don Lindsay: By using machine learning algorithms, we are now able to effectively model and predict component failure with adequate lead time to allow it to be replaced as part of regularly scheduled maintenance. Reducing unplanned downtime is expected to create $20 million in annualized EBITDA improvements in 2019 in our steelmaking coal business alone, and that's at a cost of approximately $3 million. We are rapidly advancing RACE21. We expect to identify and implement further opportunities to improve the cost structure of our business or increase our productive capacity. We will provide guidance on further potential EBITDA improvements for 2020 this February when we do our normal annual guidance, and we think that at that time it will be multiples of the current 150 that we are announcing today.

By using machine learning algorithms, we are now able to effectively model and predict component failure with adequate lead time to allow it to be replaced as part of regularly scheduled maintenance.

Reducing unplanned downtime is expected to create $20 million in annualized EBITDA improvements in 2019 in our steelmaking coal business alone and that's at a cost of approximately $3 million.

We are rapidly advancing raised 21, we expect to identify and implement further opportunities to improve the cost structure of our business or increase our production capacity.

Donald R. Lindsay: We will provide guidance on further potential EBITDA improvements for 2020 this February when we do our normal annual guidance, and we think that at that time it will be multiples of the current 150 that we are announcing today. Turning to our financial results on slide 6, we generated adjusted EBITDA of $1.2 billion in Q2, which is in line with consensus expectations. Revenues were $3.1 billion for the quarter, and gross profit before depreciation and amortization was $1.4 billion. Bottom line adjusted profit attributable to shareholders was $459 million, or $0.81 per share on both a basic and a fully diluted basis. Details of the quarter's earnings adjustments are on slide 7.

And we will provide guidance on further potential EBITDA improvements for 2020.

This February when we do our normal annual guidance and we think that that time it will be multiples of the current 150 that we are announcing today.

Turning to our financial results on slide six.

Don Lindsay: Turning to our financial results on slide 6, we generated adjusted EBITDA of $1.2 billion in Q2, which is in line with consensus expectations. Revenues were $3.1 billion for the quarter, and gross profit before depreciation and amortization was $1.4 billion. Bottom line adjusted profit attributable to shareholders was $459 million, or $0.81 per share on both a basic and a fully diluted basis. Details of the quarter's earnings adjustments are on slide 7. The most significant items in the table are the after-tax charge on the debt repurchase of $166 million and the after-tax impairment of $109 million relating to our decision not to proceed with the McKenzie Redcap extension at our Cardinal River Operations.

We generated adjusted EBITDA of $1.2 billion in the second quarter, which is in line with consensus expectations revenues were $3.1 billion for the quarter and gross profit before depreciation and amortization was $1.4 billion.

Bottom line adjusted profit attributable to shareholders was 490 $459 million or 81 cents per share on both a basic and a fully diluted basis.

Details of the quarter's earnings adjustments are on slide seven the most significant items in the table or the after tax charge on the debt repurchase of $166 million and the after tax impairment of $109 million relating to our decision not to proceed with the Mckenzie Red Kap extension at our Cardinal River operations.

Donald R. Lindsay: The most significant items in the table are the after-tax charge on the debt repurchase of $166 million and the after-tax impairment of $109 million relating to our decision not to proceed with the McKenzie Redcap extension at our Cardinal River Operations. There are also a number of additional charges that we do not adjust for, which total $77 million on an after-tax basis or $0.13 per share on a diluted basis. These include negative pricing adjustments of -$42 million, or $0.07 per share, stock-based compensation of $7 million or $0.01 per share, a change in the estimated DRP, otherwise known as decommissioning and reclamation provision of $12 million or $0.02 per share, inventory write-downs of $8 million or $0.01 per share, and the last one, commodity derivatives of $8 million or again $0.01 per share.

Don Lindsay: There are also a number of additional charges that we do not adjust for, which total $77 million on an after-tax basis or $0.13 per share on a diluted basis. These include negative pricing adjustments of -$42 million, or $0.07 per share, stock-based compensation of $7 million or $0.01 per share, a change in the estimated DRP, otherwise known as decommissioning and reclamation provision of $12 million or $0.02 per share, inventory write-downs of $8 million or $0.01 per share, and the last one, commodity derivatives of $8 million or again $0.01 per share. I will now run through highlights of business unit by business unit, starting with Steelmaking Coal on slide 8. Sales were in line with our guidance. However, results were impacted by logistical issues in May, including a workforce lockout at Neptune, unplanned outages at Westshore, and material handling issues.

There are also a number of additional charges that we do not adjust for which totaled 77 million on an after tax basis or 13 cents per share on a diluted basis and these include negative pricing adjustments of $42 million or seven cents per share stock based compensation of 7 million or one cents per share a change in the estimated de RP otherwise known as decommissioning reclamation provision of $12 million for two cents per share.

The inventory write downs of 8 million or one cents per share and the loss on commodity derivatives of $8 million or again, one cents per share.

I will now run through highlights of the business unit by business unit, starting with steelmaking coal on slide eight.

Donald R. Lindsay: I will now run through highlights of business unit by business unit, starting with Steelmaking Coal on slide 8. Sales were in line with our guidance. However, results were impacted by logistical issues in May, including a workforce lockout at Neptune, unplanned outages at Westshore, and material handling issues. Production in the quarter was also constrained by logistical issues, resulting in mine site stockpiles reaching maximum capacity at times and causing plants to be idle. However, Q2 production of 6.4 million tons was still higher than a year ago as a result of quarterly production records at our Line Creek and Greenhills operations and improved processing throughput at other operations. Demand remained quite strong in the quarter. Without the logistical issues, our Q2 sales would have easily exceeded the high end of our original guidance of 6.4 to 6.6 million tons.

Sales were in line with our guidance. However results were impacted by logistical issues in may including a workforce lockout at Neptune unplanned outages at west shore and material handling issues.

Don Lindsay: Production in the quarter was also constrained by logistical issues, resulting in mine site stockpiles reaching maximum capacity at times and causing plants to be idle. However, Q2 production of 6.4 million tons was still higher than a year ago as a result of quarterly production records at our Line Creek and Greenhills operations and improved processing throughput at other operations. Demand remained quite strong in the quarter. Without the logistical issues, our Q2 sales would have easily exceeded the high end of our original guidance of 6.4 to 6.6 million tons. Site unit costs were higher than last year, but they are in line with our annual guidance range. Looking forward, we expect sales of approximately 6.3 to 6.5 million tons in Q3.

Production in the quarter was also constrained by logistics issues, resulting in mine sites stockpiles, reaching maximum capacity at times and causing plants to be idle.

However, second quarter production of 6.4 million tonnes was still higher than a year ago. As a result of quarterly production records at our line Creek and Green Hills operations and improved processing throat at other.

Processing throughput at other operations.

Demand remained quite strong in the quarter.

Without the logistical issues, our Q2 sales would have easily exceeded the high end of our original guidance of 6.4 to 6.6 million tons.

Donald R. Lindsay: Site unit costs were higher than last year, but they are in line with our annual guidance range. Looking forward, we expect sales of approximately 6.3 to 6.5 million tons in Q3. In H2, site costs are expected to decrease to between CAD 62 and 65 per ton within our annual guidance range, as we anticipate a higher production run rate in H2. For the full year, we expect transportation costs to come in at the high end of our guidance range of CAD 37 to 39 per ton. As a result of the logistics chain issues, combined with mining challenges at Cardinal River Operations, we have reduced our 2019 production guidance range to between 25.5 and 26 million tons. Turning to our Copper business unit, our Q2 results are summarized on slide nine.

St unit costs were higher than last year, but they are in line with our annual guidance range looking forward. We expect sales of approximately 6.3 to 6.5 million tons in Q3.

Don Lindsay: In H2, site costs are expected to decrease to between CAD 62 and 65 per ton within our annual guidance range, as we anticipate a higher production run rate in H2. For the full year, we expect transportation costs to come in at the high end of our guidance range of CAD 37 to 39 per ton. As a result of the logistics chain issues, combined with mining challenges at Cardinal River Operations, we have reduced our 2019 production guidance range to between 25.5 and 26 million tons. Turning to our Copper business unit, our Q2 results are summarized on slide nine. Copper production was up year-over-year, primarily due to higher mill throughput and recovery at Highland Valley. Net cash unit costs were higher in Q2 2019 versus a year ago, impacted by substantially lower co-product and by-product credits. Antamina had substantially lower zinc sales volumes, as was expected in our plan.

In the second half of the year site costs are expected to decrease to between 62 and $65 per ton within our annual guidance range as we anticipate a higher production run rate in the second half of the year.

For the full year, we expect transportation costs to come in at the high end of our guidance range of 37 to $39 per ton.

As a result of the logistics chain issues combined with mining challenges at Cardinal River operations, we have reduced our 2019 production guidance range to between 25, and a half and 26 million tons.

Turning to our copper business unit. Our Q2 results are summarized on slide nine.

Donald R. Lindsay: Copper production was up year-over-year, primarily due to higher mill throughput and recovery at Highland Valley. Net cash unit costs were higher in Q2 2019 versus a year ago, impacted by substantially lower co-product and by-product credits. Antamina had substantially lower zinc sales volumes, as was expected in our plan. The additional D3 ball mill at Highland Valley was successfully commissioned and ramp-up is in progress. The new mill is expected to contribute to continued improvement in recoveries in H2 of the year. In June, we signed a new three-year collective agreement at Antamina. Looking forward, we expect continued improvement in throughput, in grades, and recoveries at Highland Valley, and our full-year copper production guidance is unchanged. We have lowered our net cash unit cost guidance to $1.40 to $1.50 US per pound for the full year.

Copper production was up year over year, primarily due to higher mill throughput and recovery at Highland Valley.

Net cash unit costs were higher in Q2, 2019 versus a year ago impacted by substantially lower co product and byproduct credits.

And to Mena had substantially lower zinc sales volumes as was expected in our plan.

The additional de three ball mill hidden Valley was successfully commissioned and ramp up is in progress.

Don Lindsay: The additional D3 ball mill at Highland Valley was successfully commissioned and ramp-up is in progress. The new mill is expected to contribute to continued improvement in recoveries in H2 of the year. In June, we signed a new three-year collective agreement at Antamina. Looking forward, we expect continued improvement in throughput, in grades, and recoveries at Highland Valley, and our full-year copper production guidance is unchanged. We have lowered our net cash unit cost guidance to $1.40 to $1.50 US per pound for the full year. Moving on to slide 10, I would like to provide a quick snapshot of our progress on QB2 over the last quarter. To the end of June, we have expended approximately $330 million in 2019 and have approximately 60% of the total budget committed under contracts and purchase orders to date, with the majority of the major contracts and purchase orders now completed.

The new mill is expected to contribute to continued improvement in recoveries in the second half of the year.

And in June we signed a new three year collective agreement at Antamina.

Looking forward, we expect continued improvement in throughput and grades and recoveries at Highland Valley and our full year copper production guidance is unchanged, but we have lowered our net cash unit cost guidance to $1.40 $2 50 use per pound for the full year.

Moving on to slide 10, I would like to provide a quick snapshot of our progress on QB two over the last quarter.

Donald R. Lindsay: Moving on to slide 10, I would like to provide a quick snapshot of our progress on QB2 over the last quarter. To the end of June, we have expended approximately $330 million in 2019 and have approximately 60% of the total budget committed under contracts and purchase orders to date, with the majority of the major contracts and purchase orders now completed. Engineering is now well advanced at 92% complete, procurement is approximately 88% complete, and contracting is approximately 96% complete. All of these are tracking very well, and we are moving into closeout activities for engineering. Overall, the project progress is over 14%. Speaking of ramp-up, we now have a workforce of about 3,100 on the project. The photo on the right shows some of the progress that we have made in the grinding area concentrator.

To the end of June we have expended approximately $330 million us in 2019 and have approximately 60% of the total budget committed under contracts and purchase orders to date with the majority of the major contracts and purchase orders now completed.

Don Lindsay: Engineering is now well advanced at 92% complete, procurement is approximately 88% complete, and contracting is approximately 96% complete. All of these are tracking very well, and we are moving into closeout activities for engineering. Overall, the project progress is over 14%. Speaking of ramp-up, we now have a workforce of about 3,100 on the project. The photo on the right shows some of the progress that we have made in the grinding area concentrator. Turning to slide 11, I'm pleased to report that the construction activities for our critical path are on track. Here you can see the first major concrete pour in the grinding area of the concentrator. Concrete placement for the mill foundations is advancing well and has been ongoing since the initial SAG mill number 1 pour on 20 May 2019.

Engineering is now well advanced at 92% complete procurement is approximately 88% complete and contracting is approximately 96% complete all of these are tracking very well and we are moving into close out activities for engineering.

Overall, the project progresses over 14% and speaking of ramp up we now have a workforce of about 3100 on the project.

The photo on the right shows some of the progress that we've made in the grinding area.

Concentrator.

Donald R. Lindsay: Turning to slide 11, I'm pleased to report that the construction activities for our critical path are on track. Here you can see the first major concrete pour in the grinding area of the concentrator. Concrete placement for the mill foundations is advancing well and has been ongoing since the initial SAG mill number 1 pour on 20 May 2019. On slide 12, earthworks activities are advancing in all areas with approximately 7.7 million cubic meters moved to date. This photo shows the main access road to the tailings management facility, which was completed in June, as well as lateral access roads that have been developed on the hillside. These roads will be used for hauling materials to construct the tailings starter dam. Slide 13 shows progress at the port site.

Turning to slide 11, Im pleased to report that the construction activities for our critical path are on track.

Here you can see the first major concrete pour in the grinding area of the concentrator.

Concrete placement for the mill foundations is advancing well has been ongoing since the initial Sag mill number one poor on May Twentyth 2019.

Don Lindsay: On slide 12, earthworks activities are advancing in all areas with approximately 7.7 million cubic meters moved to date. This photo shows the main access road to the tailings management facility, which was completed in June, as well as lateral access roads that have been developed on the hillside. These roads will be used for hauling materials to construct the tailings starter dam. Slide 13 shows progress at the port site. You can see the laydown and work area for the manufacture of the piles to be used in construction of the jetty for the ship loader. Shortly, the marine works contractor will begin installing piles from the jetty above. Overall, we are satisfied with the progress to date with the project team working effectively with the EPCM contractors and field personnel to safely deliver the project on time and within budget.

On slide 12 earthworks activities are advancing in all areas with approximately 7.7 million cubic meters moved to date and this photo shows the main access road to the tailings management facility, which was completed in June as well as lateral access roads that have been developed on the hillside and these roads will be used for hauling materials to construct the tailings starter dam.

Slide 13 shows progress at the Port site, you can see the lay down to work carrier for the manufacture of the pilots for use in construction of the Jedi for the ship loader.

Donald R. Lindsay: You can see the laydown and work area for the manufacture of the piles to be used in construction of the jetty for the ship loader. Shortly, the marine works contractor will begin installing piles from the jetty above. Overall, we are satisfied with the progress to date with the project team working effectively with the EPCM contractors and field personnel to safely deliver the project on time and within budget. Beyond QB2, drilling and engineering studies are underway to define our expansion options for QB3, with the potential to double or more the throughput capacity of what is currently being built at QB2. These early stage engineering studies are expected to conclude in Q3 before kicking off a pre-feasibility study before year-end.

As shortly the marine worse contractor will begin installing piles from the Gentiva.

Overall, we are satisfied with the progress to date with the project team working effectively with the PCM contractors and field personnel to safely deliver the project on time and within budget.

Don Lindsay: Beyond QB2, drilling and engineering studies are underway to define our expansion options for QB3, with the potential to double or more the throughput capacity of what is currently being built at QB2. These early stage engineering studies are expected to conclude in Q3 before kicking off a pre-feasibility study before year-end. Our zinc business units are summarized on slide 14, and as a reminder, Antamina zinc related financial results are reported in our copper business unit. Red Dog sales of zinc and concentrate were above guidance. Red Dog recovered more quickly than anticipated after the severe winter weather closed the port road and impacted production in Q1, and Q2 production was higher than for the same period last year.

And beyond QB, two drilling and engineering studies are underway to define our expansion options for cube, three with the potential to double or more the throughput capacity of what is currently being built at QB two.

These early stage engineering studies are expect to conclude in the third quarter before kicking off for pre feasibility study before year end.

Our zinc business units are summarized on slide 14, and as a reminder, antamina zinc related financial results are reported in our copper business unit.

Donald R. Lindsay: Our zinc business units are summarized on slide 14, and as a reminder, Antamina zinc related financial results are reported in our copper business unit. Red Dog sales of zinc and concentrate were above guidance. Red Dog recovered more quickly than anticipated after the severe winter weather closed the port road and impacted production in Q1, and Q2 production was higher than for the same period last year. Profit at Trail Operations was negatively affected by the historically low treatment and refining charges from before, and also higher electricity costs post-Waneta. The construction of the number two acid plant is complete and it is now fully operational, so we're delighted to see that come in on budget and ahead of schedule. Looking forward, we expect Red Dog's contained zinc sales to be 165,000 to 170,000 tons in Q3, reflecting the normal seasonal pattern.

Red dog sales of zinc in concentrate were above guidance.

Fred Doug recovered more quickly than anticipated after the severe winter weather close the Port road and impacted production in Q1 and second quarter production was higher than for the same period last year.

Don Lindsay: Profit at Trail Operations was negatively affected by the historically low treatment and refining charges from before, and also higher electricity costs post-Waneta. The construction of the number two acid plant is complete and it is now fully operational, so we're delighted to see that come in on budget and ahead of schedule. Looking forward, we expect Red Dog's contained zinc sales to be 165,000 to 170,000 tons in Q3, reflecting the normal seasonal pattern. Higher treatment and refining charges are expected to positively affect profits to Trail Operations in H2. Finally, Red Dog's net cash unit costs are expected to decline in H2 due to the normal seasonal pattern. In addition to that, we have lowered our net cash unit cost guidance to $0.30 to $0.35 per pound for the full year.

Profit at trail operations was negatively affected by the historically low treatment and refining charges from before and also higher electricity costs post with Needham.

The construction of the number two acid plant is complete and it is now fully operational so we're delighted to see that come in.

On budget and ahead of schedule.

Looking forward, we expect Red does contain zinc sales to be 165 to 170000 tonnes in Q3, reflecting the normal seasonal pattern.

Donald R. Lindsay: Higher treatment and refining charges are expected to positively affect profits to Trail Operations in H2. Finally, Red Dog's net cash unit costs are expected to decline in H2 due to the normal seasonal pattern. In addition to that, we have lowered our net cash unit cost guidance to $0.30 to $0.35 per pound for the full year. Our energy business unit results are summarized on slide 15, and despite the government of Alberta's production curtailments, our energy business unit had strong performance in Q2, with our share of Fort Hills EBITDA of $70 million, compared with $22 million in Q1 of this year, and $13 million in Q2 last year. This was supported by higher realized prices and strong operating performance.

Higher treatment and refining charges are expected to positively affect profits a trail operations in the second half of the year.

And finally Red dog's net cash unit costs are expected to decline in the second half of the year due to the normal seasonal pattern. In addition to that we have lowered our net cash unit cost guidance to 30 to 35 cents us per pound for the full year.

Our energy business unit results are summarized on slide 15.

Don Lindsay: Our energy business unit results are summarized on slide 15, and despite the government of Alberta's production curtailments, our energy business unit had strong performance in Q2, with our share of Fort Hills EBITDA of $70 million, compared with $22 million in Q1 of this year, and $13 million in Q2 last year. This was supported by higher realized prices and strong operating performance. Production and unit operating costs in the quarter reflected the production curtailments, offset with the purchase of curtailment credits. Looking forward, the government imposed production curtailments have been extended to at least the end of August, and as a result, we expect to come in at the low end of the guidance range for our shares of bitumen production of 12 million to 14 million barrels for the full year. With the lower production, we expect Q3 and Q4 unit operating costs to be similar to H1 of the year at the high end of our original annual guidance of CAD 26 to 29 per barrel of bitumen. With that, I'll pass it over to Ron Mills for some comments on our financial results.

And despite the government of Alberta is production curtailments, our energy business unit had strong performance in the second quarter with our share for sales EBITDA of $70 million compared with 22 million in the first quarter of this year and $13 million in the second quarter last year.

And this was supported by higher realized prices and strong operating performance.

Donald R. Lindsay: Production and unit operating costs in the quarter reflected the production curtailments, offset with the purchase of curtailment credits. Looking forward, the government imposed production curtailments have been extended to at least the end of August, and as a result, we expect to come in at the low end of the guidance range for our shares of bitumen production of 12 million to 14 million barrels for the full year. With the lower production, we expect Q3 and Q4 unit operating costs to be similar to H1 of the year at the high end of our original annual guidance of CAD 26 to 29 per barrel of bitumen. With that, I'll pass it over to Ron Mills for some comments on our financial results.

Production in unit operating costs in the quarter reflected the production curtailments offset with the purchase of curtailment credits.

Looking forward the government and post production curtailments have been extended to at least the end of August and as a result, we expect to come in at the low end of the guidance range for our shares of bitumen production of 12 million to 14 million barrels for the full year.

And with the lower production, we expect Q3, and Q4 unit operating costs to be similar to the first half of the year at the high end of our original annual guidance of 26 to $29 Canadian per barrel of bitumen.

And with that I'll pass it over to Ron Mills for some comments on our financial results.

Excuse me thanks Don.

Ron Millos: Excuse me. Thanks, Don. Slide 16 summarizes the changes in our cash position during Q2. We generated just over $1.1 billion in cash flow from operations this quarter. We spent $599 million on capital projects and CAD 835 million redeeming the $600 million notes. Our capitalized stripping costs were $170 million. We purchased $153 million in Class B shares, which were canceled, and we paid $101 million in interest and finance charges. We spent $48 million on investments in other assets, $39 million on lease payments, and $28 million in our regular base dividends. After these and other minor items, we ended the quarter with cash and short-term investments of around $1.5 billion. Turning to a summary of our financial position on slide 17.

Slide 16 summarizes the changes in our cash position during the second quarter.

We generated just over 1.1 billion in cash flow from operations. This quarter, we spent $599 million on capital projects and Canadian 839, 835 million redeeming the US 600 million notes.

Our capitalized stripping costs were $170 million, we purchased $153 million in class B shares, which are cancelled and we paid 101 million and interest and finance charges.

We spent 48 million on investments and other assets 39 million on lease payments and $28 million in our regular base dividends and after these and other minor items, we ended the quarter with cash and short term investments of around $1.5 billion.

Turning to a summary of our financial position on slide 17, our liquidity remains strong at about 6.8 billion currently and that includes $1.6 billion in cash our US 4 billion unused line of credit 1 billion up the cash is in Chile for the development of the QB two project and as Don mentioned earlier, we signed to use 2.5 billion limited recourse project financing facility to fund the development of the QB two project.

Bryan Healey: Our liquidity remains strong at about $6.8 billion currently, and that includes $1.6 billion in cash, our US $4 billion unused line of credit. $1 billion of the cash is in Chile for the development of the QB2 project. As Don mentioned earlier, we signed a US $2.5 billion limited recourse project financing facility to fund the development of the QB2 project. That financing is expected to close in Q3. As we previously mentioned, the QB2 partnering transaction and financing plan dramatically reduce our funding requirements for the project to just US $693 million, and that includes escalation. No cash is expected from Teck until late 2020. With the redemption of the US $600 million of notes, our outstanding notes have been reduced to $3.2 billion, and as Don mentioned, there's no significant debt maturities prior to 2035.

Ron Millos: As Don mentioned earlier, we signed a US $2.5 billion limited recourse project financing facility to fund the development of the QB2 project. That financing is expected to close in Q3. As we previously mentioned, the QB2 partnering transaction and financing plan dramatically reduce our funding requirements for the project to just US $693 million, and that includes escalation. No cash is expected from Teck until late 2020. With the redemption of the US $600 million of notes, our outstanding notes have been reduced to $3.2 billion, and as Don mentioned, there's no significant debt maturities prior to 2035. With that, I'll turn the call back to Don for his closing comments.

And that financing is expected to close in the third quarter as we previously mentioned the QB, two partnering transaction and financing and dramatically reduce our funding requirements for the project to just 690 $693 million that includes ex escalation and no cash is expected from cash from tech until late 2020.

Now with the redemption of the US $600 million of notes are outstanding notes have been reduced to 3.2 billion and as Don mentioned Theres no significant debt maturities prior to 2035.

Ron Millos: With that, I'll turn the call back to Don for his closing comments.

With that I'll turn the call back to Don for his closing comments. Thanks, Ron as I've said before this is a very transformational time for Teck overall I'm feeling very good about the direction of the company and the strong foundation that we've built we finalized the QB two financing and advance the projects major works, we increased our share buyback $2 billion and we further strengthened our balance sheet by redeeming the 600 million us of notes and we announced three key developments first we updated our capital allocation framework under which we are prioritizing returning cash to shareholders by adding at least 30% of free cash flow to our base dividend.

Donald R. Lindsay: Thanks, Ron. As I've said before, this is a very transformational time for Teck. Overall, I'm feeling very good about the direction of the company and the strong foundation that we've built. We finalized the QB2 financing and advanced the project's major works. We increased our share buyback to CAD 1 billion, and we further strengthened our balance sheet by redeeming the $600 million of notes. We announced three key developments. First, we updated our capital allocation framework under which we are prioritizing returning cash to shareholders by adding at least 30% of free cash flow to our base dividend. The BC government has endorsed saturated rock fills as an alternative form of water treatment, which will significantly reduce capital and operating costs.

Don Lindsay: Thanks, Ron. As I've said before, this is a very transformational time for Teck. Overall, I'm feeling very good about the direction of the company and the strong foundation that we've built. We finalized the QB2 financing and advanced the project's major works. We increased our share buyback to CAD 1 billion, and we further strengthened our balance sheet by redeeming the $600 million of notes. We announced three key developments. First, we updated our capital allocation framework under which we are prioritizing returning cash to shareholders by adding at least 30% of free cash flow to our base dividend. The BC government has endorsed saturated rock fills as an alternative form of water treatment, which will significantly reduce capital and operating costs.

And the BC government has endorsed saturated rock filter as an alternative form water treatment, which will significantly reduce capital and operating costs.

Donald R. Lindsay: We are accelerating Race 21 to generate an initial CAD 150 million in annualized EBITDA improvements by the end of the year, and we believe there will be multiples of that in the future. These milestones are part of our straightforward strategy of running our operations safely, efficiently, and sustainably to generate cash, successfully executing our QB2 project, and returning additional cash to shareholders. With that, we would be happy to answer your questions, and please note that some of our management team members are calling in from different locations, so there may be a brief pause after you ask your question. Back to you, operator.

Don Lindsay: We are accelerating Race 21 to generate an initial CAD 150 million in annualized EBITDA improvements by the end of the year, and we believe there will be multiples of that in the future. These milestones are part of our straightforward strategy of running our operations safely, efficiently, and sustainably to generate cash, successfully executing our QB2 project, and returning additional cash to shareholders. With that, we would be happy to answer your questions, and please note that some of our management team members are calling in from different locations, so there may be a brief pause after you ask your question. Back to you, operator.

And we are accelerating raise 21 to generate an initial $150 million in annualized EBITDA improvements by the end of the year and we believe it will be multiples of that in the future.

These milestones are part of our straightforward strategy of running our operations safely efficiently and sustainably to generate cash successfully executing our QB two project and returning additional cash to shareholders.

And with that we would be happy to answer your questions and please note that some of our management team members are calling in from different locations. So there may be a brief pause after you ask your question.

Back to you operator.

Jen: Thank you. We will now take questions from the telephone lines. If you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press star two. There will be a brief pause while the participants register for questions. Thank you for your patience. We will take our first question from Matthew Korn with Goldman Sachs. Please go ahead.

Operator: Thank you. We will now take questions from the telephone lines. If you're using a speakerphone, please mute your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press star two. There will be a brief pause while the participants register for questions. Thank you for your patience. We will take our first question from Matthew Korn with Goldman Sachs. Please go ahead.

Thank you.

We will now take questions from the telephone lines, if youre using a speakerphone. Please if your handset for making this election.

If you have a question please press star one.

Telephone keypad.

Anytime you wish to cancel your question. Please press star two.

It will be a brief pause while the participants register for questions. Thank you for your patience.

We will take our first question from Matthew Korn with Goldman Sachs. Please go ahead.

Matthew Korn: Hi, good morning, everyone. If you could, just a little bit more, what exactly was the detailed analysis done that prompted the pushback of so much of QB2 spending this year? Does it all push into 2020?

Hi, good morning, everyone.

If you could just a little bit more what exactly was the detailed analysis is done that that prompted the pushback of so much of QB two spending this year and does it all pushing to 2020.

I'm going to turn that over to Alex Christopher Yes. So in terms of the QB spending thats being pushed is being pushed into into 2020 and thats really a function of.

Donald R. Lindsay: I'm going to turn that one over to Alex Christopher.

Don Lindsay: I'm going to turn that one over to Alex Christopher.

Alex Christopher: Yes. In terms of the Q2 spending, it's being pushed into 2020, and that's really a function of two things. Number one is a bit of a slower mobilization in some of the non-critical path areas, and that's a function of some of the environmental clearances and weather impacts as well as some of the timing of some of the initial invoices coming out of the contractors as we ramp up activities.

Some two things number one is a bit of a slower mobilization in some of the non critical path areas and that's a function of some of the the.

Fundamental clearances and weather weather impacts.

As well as some of the timing of some of the initial invoices coming out of the contractors as we ramp up activities.

Got it and then the other one I want to some clariphy clarification on on the saturated rock feels is the approval and endorsement you've gotten from the BC government for Elkview and LP only and we've had Srs and do you still need to do some more work to prove the viability for for future Essar I filled out thanks.

Matthew Korn: Got it. The other one I wanted some clarification on the saturated rock fills, is the approval and endorsement you've gotten from the BC government for Elk View and Elk View only that SRF, and do you still need to do some more work to prove the viability for future SRF build-outs? Thanks.

The short answer is yes, its approval for LP only at this stage, but they have endorsed the.

Donald R. Lindsay: The short answer is yes. It's approval for Elkview only at this stage, but they have endorsed the approach and technology overall, and we fully expect that the Elkview one will be successful. We've been running it now for over a year. Remember, it recovers more selenium and more of the nitrates than the tank-based active water treatment plants, and it gets into operation two years faster. It's not just the cost advantages, but there are a number of very significant advantages that lead us to believe that that's the technology of the future.

Don Lindsay: The short answer is yes. It's approval for Elkview only at this stage, but they have endorsed the approach and technology overall, and we fully expect that the Elkview one will be successful. We've been running it now for over a year. Remember, it recovers more selenium and more of the nitrates than the tank-based active water treatment plants, and it gets into operation two years faster. It's not just the cost advantages, but there are a number of very significant advantages that lead us to believe that that's the technology of the future.

The approach and technology overall, and we fully expect that the Q1 will be successful we have been running it now for.

Over a year and remember it recovers more selenium and more of the nitrates and the tank base.

Active water treatment plants and as it gets into operation two years faster so.

It's not just the cost advantages, but there are a number very significant advances with that.

Lead us to believe that Thats, the technology of the future.

Matthew Korn: Got it. Thank you.

Thank you.

We will now take our next question from Chris Terry with Deutsche Bank. Please go ahead.

Jen: We will now take our next question from Chris Terry with Deutsche Bank. Please go ahead.

Operator: We will now take our next question from Chris Terry with Deutsche Bank. Please go ahead.

Hi, Don.

Chris Terry: Hi, Don, and Tim. A couple of questions from me. Just in terms of the slide 4 on the capital management and thinking about where we're at today and then that framework for the future. Given you've already announced the buybacks out, I imagine when you get to November, you're then talking about what you might announce from that point forward. Is the 30% the historic cash flow, as in what you've delivered from 2019? Or is it your forecast for 2020 once you get to the end of this year and make a decision on your next capital management announcement? Thanks.

And Tim.

Couple of questions from me.

Just just in terms of the slide four on the capital management and thinking about where we're at today and then that framework for the future given you've already announced the box out I imagine.

When you get to November you, then talking about what you might announce from that point forward is the 30% the.

Historic cash flow as in what you've delivered from 29 container as you forecast for 2021 once you get to the end of this year makes a decision on on your next capital management.

Announcement thanks.

I'll turn that over to Ron Millos.

Donald R. Lindsay: I'll turn that over to Ron Mills.

Don Lindsay: I'll turn that over to Ron Mills.

Ron Millos: Yeah. The 30% will be based on effectively our operating cash flow less the lease payments, the interest payments, and the minority interest, then knock off the capital that Don spoke to earlier and any debt payments that we would have to make. Once we get to the end of the year or have our forecast for the end of the year, we would then look at what that 30% number would kick out and talking about paying. As Don mentioned, this is in addition to the base dividend that we're paying. Does that cover your question?

Yes, one of the 30%.

Will be based on effectively our operating cash flow less the adds to the lease payments the.

Interest payments and the minority interest and knock off to the capital that Don spoke to earlier and any debt payments that we would have to make so.

Once we get to that at the end of the year or have our forecast for the end of the year.

We would then look at what what that 30% number would kick out and.

Talking about paying as Dawn mentioned this is in addition to the base dividend that we're paying.

Back to your question.

Chris Terry: Yeah. No, I was just trying to check because you've already gone above that 30% this year. When you get to the end of this year, you will have already met that, and thinking about what you could announce at the end of the year ready for 2020, assuming you've already exhausted the current CAD 600 million buyback program.

Yeah, I was just trying to check because you've already gone above that 30%. This year when you get to the end of this year you will have already met that and thinking about what you could announce at the end of the year ready for 2020, Schimming you've already exhausted the current 600 million buyback program.

Yeah, no. That's a good observation for this year we have.

Donald R. Lindsay: Yeah. No, that's a good observation. For this year, we have allocated more capital than the formula would suggest in terms of returning capital to shareholders, but probably you should use this framework to look at 2020. Whatever your model throws out on the 2020, you could apply this framework to it. I should say that while historically we've made the decision in November, there is a bit of a debate amongst shareholders that have even given us feedback that some would prefer the payout to come from the final year-end results, which means you do it in February. Others think that November, you can kind of predict what your year-end results are going to be. It's one or the other. We'll see.

Don Lindsay: Yeah. No, that's a good observation. For this year, we have allocated more capital than the formula would suggest in terms of returning capital to shareholders, but probably you should use this framework to look at 2020. Whatever your model throws out on the 2020, you could apply this framework to it. I should say that while historically we've made the decision in November, there is a bit of a debate amongst shareholders that have even given us feedback that some would prefer the payout to come from the final year-end results, which means you do it in February. Others think that November, you can kind of predict what your year-end results are going to be. It's one or the other. We'll see.

Allocate more capital than the Formula would suggest in terms of returning capital to shareholders, but.

Probably you should use this framework to look at 2020.

Whatever your model throws out on the 2020, you could apply this framework to it.

I should say that well historically, we've made the decision in November there is a bit of a debate amongst.

Amongst.

Shareholders of even given us feedback that some would prefer.

The payout to come from the final year end results, which means you do it in February .

Others think that November you can kind of predict what your year end results are going to be so it's one or the other we'll see.

Chris Terry: Okay. Thanks for that. Just in terms of the coal guidance change, it's quite minor, but splitting out, I guess, the different parts to how we've evolved through the year, so that's more to do with what wasn't produced in H1 rather than what could be produced in H2. That's how we read that?

Okay. Thanks for that and then just in terms of the coal guidance change, it's quite modest but splitting out I guess the different parts to how we've evolved through the year is that so thats more to do with what Wasnt produced in the first half rather than what could be produced in the second half. That's that's how we rate debt.

Hi, Robin and rail are both nodding their heads and answer the question I do want to highlight though that as as weve reduced the guidance that the bulk of the tonnage. This within the reduction is a lower margin product. So it has very little effect on our financial results.

Donald R. Lindsay: Robin and Réal are both nodding their heads in answer to the question. I do want to highlight, though, that as we've reduced the guidance, that the bulk of the tonnage that's within the reduction is the lower margin product. It has very little effect on our financial results, but it does highlight the logistical challenges that we've had, which we are, of course, investing in new capacity at Neptune to try and alleviate those challenges.

Don Lindsay: Robin and Réal are both nodding their heads in answer to the question. I do want to highlight, though, that as we've reduced the guidance, that the bulk of the tonnage that's within the reduction is the lower margin product. It has very little effect on our financial results, but it does highlight the logistical challenges that we've had, which we are, of course, investing in new capacity at Neptune to try and alleviate those challenges.

But it does highlight the logistical challenges that we've had.

Which we are of course investing in.

In new capacity at Neptune to try to alleviate those challenges.

Chris Terry: Okay. Just on the SRF, is there any federal government approval needed for that, or is it just by the state? When would you expect to be able to quantify the CapEx and operating savings going forward?

Okay, and then and just to just on the on the Srs is there any federal government approval and they needed for that or is it just by the state and when would you expect to be able to quantify the capex and operating savings going forward.

There is no federal approval involved it is the province, only and we have I think indicated in our disclosure that.

Donald R. Lindsay: There is no federal approval involved. It is the province only. We have, I think, indicated in our disclosure that we believe that the capital costs will be less than a quarter of about 20% of what it would cost to build an equivalent size tank-based water treatment plant, and that the operating costs would be about 50% of what a tank-based plant would have.

Don Lindsay: There is no federal approval involved. It is the province only. We have, I think, indicated in our disclosure that we believe that the capital costs will be less than a quarter of about 20% of what it would cost to build an equivalent size tank-based water treatment plant, and that the operating costs would be about 50% of what a tank-based plant would have.

We believe that the capital costs.

We'll be less than a quarter of about 20%.

Of what it would cost to build an equivalent size tank tank based to water treatment plant and that the operating costs would be about 50% of what a tank base plant would have.

Okay. Thanks, Thank you.

Chris Terry: Okay. Thank you.

Donald R. Lindsay: And those-

Don Lindsay: And those-

Chris Terry: Sorry.

Sorry, it was those plants just order of magnitude for those plants about $400 million. So.

Donald R. Lindsay: Order of magnitude for those plants is about $400 million. If you extend that throughout the model over the next 10 years, that's very significant savings.

Don Lindsay: Order of magnitude for those plants is about $400 million. If you extend that throughout the model over the next 10 years, that's very significant savings.

If you extend that throughout the model over the next 10 years, that's very significant savings.

Okay. Thanks for the color hundreds.

Chris Terry: Okay. Thanks for the color.

Donald R. Lindsay: Hundreds

Don Lindsay: Hundreds

Chris Terry: On that one. Just the last one from me, the met coal price obviously weakened just a little bit in the last month or so. Just asking for an updated view on how you're seeing the current conditions in met coal. Thanks.

On that one just a last one from me the met coal prices. Obviously, we can just a little bit in the last month or so.

Just just after an updated view or how you are saying the current conditions in met coal. Thanks.

Turn that over to reopen early.

Donald R. Lindsay: Turn that over to Réal Foley.

Don Lindsay: Turn that over to Réal Foley.

Réal Foley: All right. Thanks, Chris. When we look at met coal, one important point to note is that the fundamentals for demand supply remain strong. Yes, there has been steel production cuts announced in mainly the EU and also US. When you look at hot metal production, which is a good proxy for steel making coal demand, because it relies on coke. The reality is that year to date, the global hot metal production is up 5.1%, and it's based on really strong production out of India, Southeast Asia, China. When you compare the EU and US versus the hot metal production in the rest of the world, they only represent somewhere around 10% or so of that production. The strong demand in those other market areas more than offset the cuts that have been announced in EU and US.

Alright, Thanks, Chris So.

When we look at the met coal one important point to note is that the fundamentals forward demand supply remains strong yes. There has been steel production cuts announced in and mainly the new and also U.S.

When you look at hot metal production, which is a good proxy for steelmaking coal demand is it relies on coke.

The reality is that me year to date, the global Hot metal production is up 5.1%.

Okay, and it's it's based on really strong production out of India, Southeast Asia and China.

And again when you compare the you and us versus the hot metal production in the rest of the world.

The only represents somewhere around 10% or so.

Of that production so.

The strong demand in those other market areas more than offset the cuts that have been announced you end use.

Okay. Thanks, Thanks, guys for all the answers.

Chris Terry: Okay. Thanks, guys, for all the answers.

Your next question is from Orest Wowkodaw with Scotia Bank. Please go ahead.

Jen: The next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

Operator: The next question is from Orest Wowkodaw with Scotiabank. Please go ahead.

Orest Wowkodaw: Hi. Good morning. Just a little bit more clarity, if we could, on the water treatment. Congratulations on getting the endorsement here on the first plant at Elkview. Can you just remind us about how many water treatment plants do you still have to build in the valley? Of those, how many do you think are suitable for SRF versus the active water treatment facility?

Hi, good morning.

Just a little bit more clarity, if we could on the water treatment.

And congratulations on getting the endorsement here on the on the first point at all for you can you just remind us about how many water treatment plants do you still have to build in the valley and of those.

How many do you think are suitable for srs versus the active water treatment facility.

Robin Chairman.

Donald R. Lindsay: Robin B. Sheremeta.

Don Lindsay: Robin B. Sheremeta.

Robin B. Sheremeta: Yeah. There's a number of plants that have been established, and we talked about that back a ways, but there's the Fording River South tank base active water treatment plant that's being built right now. It's about 20,000 cubic meters a day or 2 million liters of water a day. There's the SRF at Elkview that's being constructed right now. Both those will come online at the end of 2020. There's a third large plant, which would be the fourth plant after the Line Creek, the Elkview, and the Fording River South. There'll be the fourth plant constructed at Fording River. That's the optionality, I guess, that we discussed as a best case scenario, which would be to replace that tank-based plant with a saturated rock fill.

Robin Sheremeta: Yeah. There's a number of plants that have been established, and we talked about that back a ways, but there's the Fording River South tank base active water treatment plant that's being built right now. It's about 20,000 cubic meters a day or 2 million liters of water a day. There's the SRF at Elkview that's being constructed right now. Both those will come online at the end of 2020. There's a third large plant, which would be the fourth plant after the Line Creek, the Elkview, and the Fording River South. There'll be the fourth plant constructed at Fording River. That's the optionality, I guess, that we discussed as a best case scenario, which would be to replace that tank-based plant with a saturated rock fill.

Yes, there is some.

There's a number of plants that have been established when we talked about that back away but.

There's the fording river cells.

Tank based active water treatment plant is being built right now it's about 20000 cubic meters a day or.

2 million liters of water a day and then there's the Srs I don't view as being constructed right now both those will come online at the end of 2020.

And then there is a.

A third large plant.

Which would be the fourth plant after the Lion Creek. The help you in the 40 members. So there will be the fourth plant constructed at Fording River.

And that's the that's the Optionality I guess that we discussed the best case scenario, which it would be to replace that tank baseline with a saturated rock fill so that's the path we're trying to establish right now around.

Robin B. Sheremeta: That's the path we're trying to establish right now around options in terms of water treatment at that end of the valley. That's what was defined across the five years. Then there are future plants that are really defined by updated modeling and measurements that are taken in the valley. We had guided rough numbers around annual costs and operating costs out of 10, 15 years. Those projections need to be now reassessed with what is extraordinarily positive news, which is we are able to now advance the SRF strategy. It's got an enormous amount of potential. Really that has to be brought into the long-term strategy.

Robin Sheremeta: That's the path we're trying to establish right now around options in terms of water treatment at that end of the valley. That's what was defined across the five years. Then there are future plants that are really defined by updated modeling and measurements that are taken in the valley. We had guided rough numbers around annual costs and operating costs out of 10, 15 years. Those projections need to be now reassessed with what is extraordinarily positive news, which is we are able to now advance the SRF strategy. It's got an enormous amount of potential. Really that has to be brought into the long-term strategy.

Options in terms of water treatment at that end of the valley.

And that's what was defined across the five years.

And then there are future plants that are are really defined by.

Updated modeling and and measurements that are taken in the valley and we had guided rough numbers around annual costs and operating costs out 10, 15 years. So those those projections need to be now reassessed with wood is extraordinarily positive news, which is we are able to now a vast yes RF strategy its.

He's got an enormous amount of potential and so really that has to be brought into the long term strategy.

Donald R. Lindsay: Maybe if I could just sort of simplify it all that from the big picture point of view, in the original plan with the government, there were nine plants contemplated. We built one and we're building the second, and now we're switching to SRF, and we would hope that SRF would be the technology for the rest of them.

Don Lindsay: Maybe if I could just sort of simplify it all that from the big picture point of view, in the original plan with the government, there were nine plants contemplated. We built one and we're building the second, and now we're switching to SRF, and we would hope that SRF would be the technology for the rest of them.

Maybe if I could just sort of simplified all that in the from the Big picture point of view in the original plan with the government. There were nine plants contemplated we've built one and we're building the second and now were switching to Srs and we would hope that us RF would be the technology for the rest of them.

Orest Wowkodaw: Okay.

Okay and technology.

Donald R. Lindsay: A similar technology to SRF.

Don Lindsay: A similar technology to SRF.

If you think that the remaining seven plants or are all suitable potentially for RF frf.

Orest Wowkodaw: You think that the remaining 7 plants are all suitable potentially for SRF?

I would say Srs or technology very similar to it.

Donald R. Lindsay: I would say SRF or technology very similar to it.

Don Lindsay: I would say SRF or technology very similar to it.

Orest Wowkodaw: Okay.

Okay.

Robin B. Sheremeta: Yeah, I think it's important just we continue to do a considerable amount of research, and that is opening possibilities of other techniques that are even more appropriate for specific applications than SRFs are. Lots of work still being done on this.

Robin Sheremeta: Yeah, I think it's important just we continue to do a considerable amount of research, and that is opening possibilities of other techniques that are even more appropriate for specific applications than SRFs are. Lots of work still being done on this.

Yeah, I think I was important just.

We continue to do in a considerable amount of research and that is opening possibilities of other.

Hi techniques that are already.

No more more appropriate for specific applications and Srs, so lots of work still being done on us.

Orest Wowkodaw: Okay. When do you think you'll be in a position to give the market guidance then on the net implications for the capital and operating costs?

Okay. When do you think you'll be in a position to give the market guidance then on the net implications are for the capital and operating costs.

Well we are disclosing.

Donald R. Lindsay: Well, we are disclosing in our release today that the operating costs will be about half of what a tank-based water treatment plant would be, and the capital cost about 20%. That's what we've established so far, and that's what we would apply to the Elkview plant, and the other plants would be similar.

Don Lindsay: Well, we are disclosing in our release today that the operating costs will be about half of what a tank-based water treatment plant would be, and the capital cost about 20%. That's what we've established so far, and that's what we would apply to the Elkview plant, and the other plants would be similar.

In our release today that the.

Operating costs will be about half of what a tank waste water treatment plant would be in the capital costs about 20%. So.

That's that's what we've.

Established so far and Thats, what we would apply to the Elkview plant and other plants would be similar.

Orest Wowkodaw: Okay. All right. Thank you.

Okay all right. Thank you.

The next question is from Greg Burns with TD Securities. Please go ahead.

Jen: The next question is from Greg Barnes with TD Securities. Please go ahead.

Operator: The next question is from Greg Barnes with TD Securities. Please go ahead.

Greg Barnes: Yes. Thank you. Question for Don or Réal. There's a lot of talk lately about China imposing quotas or meeting quotas, I guess, for coal imports in September at a number of ports, and what the impact might that have on coke and coal imports into China beyond that, and the broader market in general?

Yes. Thank you question for Donald Reale, there's a lot of talk lately about.

China.

Imposing quotas are meeting quotas, I guess, a cold and falls in September as a number of puts and.

What the impact might that have on coal coking coal imports into China.

Beyond that.

And the market broader broader market in general.

Okay real concern.

Donald R. Lindsay: Okay, Réal can start.

Don Lindsay: Okay, Réal can start.

Réal Foley: All right. Thanks, Greg. The first thing, I guess, to keep in mind is our exposure to China is a lot lower than it's been. If you look at 2018, our sales to China were less than 3 million tons, compared to a peak in 2013 of around 8 million. For the first time in 2018, our sales to India exceeded the sales to China. Second point is that China has imposed import restrictions at a number of ports, actually at all the ports in China, pretty much, since February this year. When you look at the actual numbers, seaborne imports continue to be strong into China. They're up 3 million tons year to date, year over year. Most of the impact actually has been on thermal coal.

All right. Thanks, Greg.

So.

The first thing I guess keep in mind is our exposure to China is a lot lower than it's been if you look at 2018, our sales to China were less than 3 million tons compared to peak in 2013 of around 8 million.

And for the first time in 2018, our sales to India exceeded the sales to China.

And second point is that.

China.

Has imposed import restrictions that the number four and sexually at all the ports in China pretty much.

Since February this year, but when you look at the actual numbers seaborne imports continue to be strong into China.

They are up 3 million tons year to date year over year and.

Most of the impact actually has been on thermal coal.

And there were reports.

Réal Foley: There were reports, if I recall correctly, it was last week, saying that two ports in the north were placing additional restrictions on import from traders. When we talk to our customers in China and also to domestic analysts, their view is that this will have a very minimal impact, if any. What will happen is the steel mills will actually import directly from the producers as opposed to traders.

If I recall correctly it was last week, saying that two points in the north we're placing additional restrictions on imports from traders.

When we talk to our customers in China and also to domestic analysts.

Their view is that this will have a very minimal impact if any.

And so.

What will happen is the steel mills will actually import directly from the producers as opposed to trades.

Thanks sure real.

Greg Barnes: Thanks, Réal.

Réal Foley: Okay.

Greg Barnes: Don, could I follow up with you and just get a broader sense of what your view is on China macroeconomic growth, and obviously commodity demand from this point forward? I'm not sure if you've been to China this year yet or not.

Don can I follow up with you and just get a broader sense of what your view is on China.

Macro economic growth.

And obviously commodities demand.

From this point forward I'm not sure if you've been to China, this year, yet or not.

I was there about a month ago.

Donald R. Lindsay: I was there about a month ago. I met with our key contacts there. Look, a lot depends on the trade negotiations with the US. The Chinese have been very capable of transitioning their economy from a FAI-based, fixed asset investment-based growth model to more of a consumption model. It's been very impressive what they've been able to accomplish in the last 3 to 5 years. I think that will continue. It's structural. They also have the BRI, the Belt and Road Initiative, that is really gaining traction now. You've heard the expression that most people overestimate what they can do in 1 year, but they vastly underestimate what they've accomplished in 5 years, and I think that's going to be something that we see in the BRI.

Don Lindsay: I was there about a month ago. I met with our key contacts there. Look, a lot depends on the trade negotiations with the US. The Chinese have been very capable of transitioning their economy from a FAI-based, fixed asset investment-based growth model to more of a consumption model. It's been very impressive what they've been able to accomplish in the last 3 to 5 years. I think that will continue. It's structural. They also have the BRI, the Belt and Road Initiative, that is really gaining traction now. You've heard the expression that most people overestimate what they can do in 1 year, but they vastly underestimate what they've accomplished in 5 years, and I think that's going to be something that we see in the BRI.

I met with.

Our key contacts there.

Look a lot depends on on the.

The trade negotiations with the U.S., but the Chinese have been.

Very very.

Capable of transitioning their economy from FX based fixed asset investment based growth model to more of a consumption model has been very impressive what they've been able to accomplish in the last three to five years I think that will continue its.

As structural.

They also have to be a ride the belt and road initiative that.

He is really gaining traction now you've heard the expression to what most people overestimate what they can do in one year, but the vastly underestimate what they accomplished in five years and I think thats going to.

Going to be something that we see in the beer I.

Donald R. Lindsay: They are quick to stimulate or loosen monetary policy if they see spots of weakness, but they're also managing the percent GDP growth rate down on a gradual basis, which you would expect because the base is just that much larger. The incremental dollar amount of additional GDP is actually the same or in some quarters higher. There will be moments of weakness that get exaggerated by media, generally US-based media. On balance, I think China's doing pretty well.

Don Lindsay: They are quick to stimulate or loosen monetary policy if they see spots of weakness, but they're also managing the percent GDP growth rate down on a gradual basis, which you would expect because the base is just that much larger. The incremental dollar amount of additional GDP is actually the same or in some quarters higher. There will be moments of weakness that get exaggerated by media, generally US-based media. On balance, I think China's doing pretty well.

They are quick to stimulate to our loose monetary policy if they see.

Spots of weakness, but theyre also managing the percent GDP growth rate down on a gradual basis, which you would expect because.

The base is just that much larger so the incremental dollar amount of additional GDP is actually the same or in some quarters higher so.

I'll add there will be moments the weakness that get a exaggerated by by media General U.S. based media, but.

On balance I think China is doing pretty well.

Greg Barnes: Thanks, Don.

Thanks, Don.

Our next question is from Curt Woodworth with credit Suisse. Please go ahead.

Jen: Our next question is from Curt Woodworth with Credit Suisse. Please go ahead.

Operator: Our next question is from Curt Woodworth with Credit Suisse. Please go ahead.

Hey, good morning, Don team.

Curt Woodworth: Hey, good morning, Don and team. Don, I was wondering if you could provide some of your initial thoughts or expectations around the QB3 scoping study, and I know there's been some additional drilling done on the resource base, and if you could just kind of broadly talk about expectations there and then how potential development of QB3 would fit into the capital return program in the sense of how do you view organic growth priority versus capital return priority going forward?

Don I was wondering if you could provide some your initial thoughts or expectations around the cube three scoping study and I know there has been some additional drilling.

Don on the resource base and.

If you could just kind of broadly talk about.

Expectations, there and then.

How potential development of cube, three would fit into the.

Capital return program and a sense of.

How do you view organic growth priority verse capital return for already going forward.

Okay. So I'll make four or five quick points I don't want to get too far ahead of this one until the scoping study is finished and we can release the details but it starts with the fact that we have a resource it's much larger than we had realized a year ago. We've increased the published resource from 4 billion to six and a half day and so far we have five drills on site.

Donald R. Lindsay: Okay. I'll make four or five quick points. I don't want to get too far ahead of this one till the scoping study is finished and we can release the details. It starts with the fact that we have a resource that's much larger than we had realized a year ago. We've increased the published resource from 4 billion to 6.5 billion. So far, we have five drills on site. We anticipate it getting much larger that we'll publish by the end of the year and beyond that. A target of toward 10 billion tons. Clearly the operation that we're building now is not optimal for the size of the resource. Second, the strip ratio, which is the key structural competitive advantage that QB2 has, is consistent for the whole vast resource.

Don Lindsay: Okay. I'll make four or five quick points. I don't want to get too far ahead of this one till the scoping study is finished and we can release the details. It starts with the fact that we have a resource that's much larger than we had realized a year ago. We've increased the published resource from 4 billion to 6.5 billion. So far, we have five drills on site. We anticipate it getting much larger that we'll publish by the end of the year and beyond that. A target of toward 10 billion tons. Clearly the operation that we're building now is not optimal for the size of the resource. Second, the strip ratio, which is the key structural competitive advantage that QB2 has, is consistent for the whole vast resource. The mine plan that we published is a 0.7 to 1.

So we anticipate it getting a much larger that we will publish by the end of the year and beyond that so the target of towards 10 billion tons. So clearly the the operation that we're building now is not optimal for the size of the resource second the strip ratio, which is the key structural competitive advantages at QB two has.

Is consistent for the the whole vast resource.

Donald R. Lindsay: The mine plan that we published is a 0.7 to 1. For the whole resource, it's 0.8 to 1. That is significantly lower than some of the major names in the copper business, such as Collahuasi next door or Antamina or Escondida itself. It's between a third and a quarter of the strip ratios that they have to deal with. That just means that we'll have that many fewer trucks, fewer shovels, graders, and loaders and a smaller maintenance shop, fewer maintenance people, and it just makes your ongoing all-in sustaining cost that much more competitive. Third, the nature of the terrain is rolling hills with lots of space to be able to build a large plant, which is quite different than some of the operations that you have been to that have very steep mountainous terrain where there really isn't room.

The the mine plan that we published is <unk> 0.7 to one for the whole resources 0.8 to one and that is significantly lower than some of the major names in the copper business such as quasi next door ran to Mina or escondida itself.

Don Lindsay: For the whole resource, it's 0.8 to 1. That is significantly lower than some of the major names in the copper business, such as Collahuasi next door or Antamina or Escondida itself. It's between a third and a quarter of the strip ratios that they have to deal with. That just means that we'll have that many fewer trucks, fewer shovels, graders, and loaders and a smaller maintenance shop, fewer maintenance people, and it just makes your ongoing all-in sustaining cost that much more competitive. Third, the nature of the terrain is rolling hills with lots of space to be able to build a large plant, which is quite different than some of the operations that you have been to that have very steep mountainous terrain where there really isn't room.

As between a third and a quarter.

The strip ratios that they have to do it so that just means that blow that many fewer trucks in for your shoulders and graders and loaders and.

Smaller maintenance shop, your maintenance people and it just it just makes your ongoing all in sustaining cost that much more competitive.

Third the nature of the terrain.

Is that is rolling hills with lots of space to be able to build a large plant, which is quite different than some of the operations that you have been to that have very steep mountainous terrain, where there really isn't room for the tailings capacity that we are building with this operation.

Donald R. Lindsay: Fourth, the tailings capacity that we are building with this operation will be about 5 billion tons. We have a second location already designed and analyzed from our 2012 engineering studies that could add a further 8 billion. There's no limitation from tailings. I forget if I'm at 4 or 5 points, the source of water is the ocean, is a desal plant. We're not drawing from soils or interfering with the agricultural communities or those sorts of things, and we have good community support. We were able to sign all of the communities in the area to support agreements. Those combination of factors don't occur that often, and in such a great country, a good geopolitical jurisdiction to be able to just focus on gradually expanding QB2 and what we call QB3 over the next 10 years or so.

Don Lindsay: Fourth, the tailings capacity that we are building with this operation will be about 5 billion tons. We have a second location already designed and analyzed from our 2012 engineering studies that could add a further 8 billion. There's no limitation from tailings. I forget if I'm at 4 or 5 points, the source of water is the ocean, is a desal plant. We're not drawing from soils or interfering with the agricultural communities or those sorts of things, and we have good community support. We were able to sign all of the communities in the area to support agreements. Those combination of factors don't occur that often, and in such a great country, a good geopolitical jurisdiction to be able to just focus on gradually expanding QB2 and what we call QB3 over the next 10 years or so.

We'll be about 5 billion tons and then we have a.

A second location already.

Designed is analyzed from our 2012 engineering studies that could add a further 8 billion. So there is no limitation from tailings.

I'm forgetting about four or five points, but the source of water is the ocean is a diesel plant, we're not drawing from a solar for interfering with agriculture communities are those sorts of things and we have good community support we were able to sign all of the the communities in the area too.

To support agreements so that those combination of factors don't occur that often.

And in such a great country, good geopolitical jurisdiction to be able to just focus on gradually expanding.

QB, two and what we call cubic three over the next 10 years or so so we're looking at a different.

Donald R. Lindsay: We're looking at different models. First is a clear 50% expansion, which would be incredibly capital efficient because we think we can do that without building new pipelines, just adding pumps and so on, and getting another line, a line being a SAG mill and two ball mills. We're also looking at doubling QB2, to take it up to over 600,000 tons of copper in concentrate per year. The capital cost for that, we estimate. This is in the forward-looking statement category. These are just estimates, which we'll support with the scoping study. That would be between $3 and 3.5 billion, versus the roughly $5 billion for QB2. Again, much more capital efficient than most alternatives out there in the copper world.

Don Lindsay: We're looking at different models. First is a clear 50% expansion, which would be incredibly capital efficient because we think we can do that without building new pipelines, just adding pumps and so on, and getting another line, a line being a SAG mill and two ball mills. We're also looking at doubling QB2, to take it up to over 600,000 tons of copper in concentrate per year. The capital cost for that, we estimate. This is in the forward-looking statement category. These are just estimates, which we'll support with the scoping study. That would be between $3 and 3.5 billion, versus the roughly $5 billion for QB2. Again, much more capital efficient than most alternatives out there in the copper world.

Models is first is a clear 50% expansion, which should be incredibly capital efficient because.

We think we can do that without building new pipelines just adding.

Pumps, and so on and getting another line align being a sag mill into ball Mills. We're also looking at doubling QB two.

To take it up to over 600000 tons of copper concentrate copper in concentrate to our per year.

And the capital cost for that we estimate that these this is in the forward looking statement category. These are just estimates, which will support with the scope certainly but that would be between three and three and a half billion.

Versus the roughly $5 billion for QB two so again.

Much more capital efficient.

And then most alternatives out there in the copper world.

Donald R. Lindsay: Because of the size of the resource, and we've got the space, we've got the water and so on, you could also triple it or even quadruple it and go to 4 SAG mills and 8 ball mills and so on. We'll do the homework and the scoping study on that and come back. One of the clear instructions that I've given to the team doing that is that I want it to be something that's moderate in capital needs in any one year. Remember, we do have the arrangement with Sumitomo where, when we go to sanction QB3, that their capital obligation is to contribute 12% of the then net present value of what QB3 would be then.

Don Lindsay: Because of the size of the resource, and we've got the space, we've got the water and so on, you could also triple it or even quadruple it and go to 4 SAG mills and 8 ball mills and so on. We'll do the homework and the scoping study on that and come back. One of the clear instructions that I've given to the team doing that is that I want it to be something that's moderate in capital needs in any one year. Remember, we do have the arrangement with Sumitomo where, when we go to sanction QB3, that their capital obligation is to contribute 12% of the then net present value of what QB3 would be then.

But because of the size of the resource and we've got the space without water and so and you could also triplett or even quadruple it can go to.

Two.

For signals.

And a ball mills and so on so we'll we'll do.

The homework in the scoping study on that and come back one of the.

Sort of clear instructions that I've given.

The team doing that is that I want it to be something this.

Moderates and capital needs in any one year and remember we do have the arrangement with Sumitomo where.

When we go to sanction cube, three that their capital obligations to contribute 12% of the van net present value of what cube three would be then so that combined with I suspect another project finance since the providers of capital have already started loving us to be able to participate in Q3, which suggests that teck would have to come up with very little of our own equity capital.

Donald R. Lindsay: That combined with, I suspect, another project finance, since the providers of capital have already started lobbying us to be able to participate in QB3, would suggest that Teck would have to come up with very little of our own equity capital to build QB3, and that would mean that the debt would stay clear, to be able to continue to return cash to shareholders. That's the design. That's what we're focused on. We've designed the balance sheet that way, with no significant maturities for another 16 years. We think it's pretty exciting and that's our priority.

Don Lindsay: That combined with, I suspect, another project finance, since the providers of capital have already started lobbying us to be able to participate in QB3, would suggest that Teck would have to come up with very little of our own equity capital to build QB3, and that would mean that the debt would stay clear, to be able to continue to return cash to shareholders. That's the design. That's what we're focused on. We've designed the balance sheet that way, with no significant maturities for another 16 years. We think it's pretty exciting and that's our priority.

To build cube, three and that would mean that the decks would stay clear.

To be able to continue to return cash to shareholders. So that's that's the design. That's what we're focused on we've designed a balance sheet that way with no significant maturities for another 16 years.

So.

We think it's pretty exciting and and that's that's our priority.

Curt Woodworth: When do you expect to have the scoping study done, by the end of this year?

And when do you expect to have the scoping study done by the end of this year.

Curt Woodworth: When do you expect to have the scoping study done, by the end of this year?

We said the end of the third quarter, but probably seeing the end of the year would be safer but.

Donald R. Lindsay: We said the end of Q3, but probably saying the end of the year would be safer. We're intensely working on it now.

Don Lindsay: We said the end of Q3, but probably saying the end of the year would be safer. We're intensely working on it now.

We're we're intensely working on it now.

Curt Woodworth: Okay. Sounds really good. One follow-up on the ongoing issues with logistics at West Shore and then rail issues. Can you talk about your expectations, maybe over the next 12 to 18 months, in terms of how you're going to reposition your port capacity and what you think that can mean for your logistics costs? I mean, clearly the West Shore contract is up in early 2021. You have Neptune, and then will Ridley continue to play a role given the new ownership? Any comments on that I think would be greatly appreciated.

Okay sounds sounds really good and one follow up on.

The.

Kinda ongoing issues with logistics at West Shore, and then rail as she is Kent can you talk about.

Your expectations maybe over the next.

12 to 18 months in terms of how you're going to reposition your port capacity and what you think that can mean for your logistics costs I mean, clearly the west shore contract is up in early 21, you have Neptune and then.

It will really continue to play a role given the new ownership and any comments on that I think would be greatly appreciated.

Sure well, we will finish the.

Donald R. Lindsay: Sure. Well, we'll finish the Neptune expansion by November 2020. That's next year. I was on site on Friday, had a good visit. That'll leave us lots of time for start-up and commissioning and that. Ridley will certainly be a part of our logistical chain going forward as it is now. We think having new owners there is a good thing because they'll be wanting to maximize the value and throughput in their new investment. It'll be great working with the private sector, so we're very encouraged by that. In terms of how much tonnage will go where, we'll determine that in due course.

Don Lindsay: Sure. Well, we'll finish the Neptune expansion by November 2020. That's next year. I was on site on Friday, had a good visit. That'll leave us lots of time for start-up and commissioning and that. Ridley will certainly be a part of our logistical chain going forward as it is now. We think having new owners there is a good thing because they'll be wanting to maximize the value and throughput in their new investment. It'll be great working with the private sector, so we're very encouraged by that. In terms of how much tonnage will go where, we'll determine that in due course.

Neptune expansion.

By November of 2020, that's next year I was on site on Friday had a good visit.

And that will leave us lots of time.

For up and commissioning amounts on that then.

Really will certainly be a part of.

Of our.

Logistical chain going forward as it is now.

We think having new owners there is a good thing because there'll be wanting to maximize the value and throughput.

And their new investment.

It would be great working with the private sector. So we're very encouraged by that and in terms of the how much tonnage will go where we'll determine that in due course.

But.

Curt Woodworth: All right.

Donald R. Lindsay: No matter what configuration you can think of, our costs will be going down significantly.

Don Lindsay: No matter what configuration you can think of, our costs will be going down significantly.

No matter matter what configuration, you can think of our costs will be going down significantly.

Curt Woodworth: Yep. Okay, thanks.

Yes, okay. Thanks.

The next question is from Timna Tanners with Bank of America Merrill Lynch. Please go ahead.

Jen: The next question is from Timna Tanners with Bank of America Merrill Lynch. Please go ahead.

Operator: The next question is from Timna Tanners with Bank of America Merrill Lynch. Please go ahead.

Timna Tanners: Yeah. Hey, good morning, guys. I was wondering if you could provide a little bit more color on thoughts around zinc since we last heard from you. That's been a pretty weak market, so just wanted your take on that. Any plans to address maybe some of the oversupply with curtailments? If you could address that.

Yeah, Hey, good morning, guys.

I was wondering if you could provide a little bit more color on thoughts around thank since we last heard from you and that's been a pretty weak market. So just wanted your take on that any plans to address.

Maybe some of the oversupply with curtailments.

If you could address that.

Hey over to Andrew Stonkus.

Donald R. Lindsay: Okay, over to Andrew Stonkus.

Don Lindsay: Okay, over to Andrew Stonkus.

Andrew Stonkus: Yeah, thank you. The zinc market, if you look at the concentrate market, remains still very well supplied. Spot TCs are above the benchmark levels, but they have capped out and they're starting to trend a little bit downwards as Chinese smelters are starting to increase their utilization rates. What we're seeing in the zinc concentrate market is disruptions on the mining side. The surplus is not as big as it was initially forecast. The significant surplus that was initially forecasted is coming down. The International Lead and Zinc Study Group is forecasting a smaller deficit today than they were earlier. On the metal side, we're still at historically low levels on the LME exchanges. We're down to about seven days of consumption. Again, as Réal pointed out on the coal side, the fundamentals on zinc are still pretty solid.

Thank you.

Distinct market, if you look at the concentrate market.

Coffee markets, there remains still a very well supplied tcs spot ccs or above the benchmark levels that they have capped out in these turned to trend a little bit downward SASSA Chinese smelters or is trying to increase your utilization rates, but what we're seeing in the zinc cost free market is.

Disruptions are up and and some.

Disruptions on the mining side. So the surplus is not as big as it was initially forecast.

And so the debt significant surplus I was initially forecast this is coming down on the web.

The international the zinc.

Let's think study group is forecasting a smaller deficits today than they were earlier on the metal side, we're still at historically low levels on the LNG exchanges, we're down to about seven days of consumption. So again to Esa Esa retail pointed on the coal side the fundamentals on zinc are still.

Pretty solid.

Andrew Stonkus: The demand for zinc metal is holding up. Inventories are low. Prices are being reflected by the macroeconomic negativity. In terms of fundamentals, metal inventories are still at historically low levels.

The demand for zinc metal is is holding up.

Inventories are low.

Prices are being reflected by the.

Macroeconomic.

Negativity, but in terms of fundamentals metal inventories are still at historically low levels, you, maybe just to add a bit of color as we call. It on fundamentals.

Donald R. Lindsay: Maybe just to add a bit of color, as we call it, on fundamentals. We met with a longtime friend of Teck's yesterday, the CEO of one of the very largest base metal companies in China, and he gave an assessment that he thinks it's now easier to get a permit and to build a mine in Canada than it will be in China, because the environmental restrictions in China are so tough that he doesn't think there'll be any new zinc mines built in China. They're actually investing in building a zinc mine in Canada. To the extent that people do analysis and think a lot of zinc will show up in the China market, apparently the locals don't think so.

Don Lindsay: Maybe just to add a bit of color, as we call it, on fundamentals. We met with a longtime friend of Teck's yesterday, the CEO of one of the very largest base metal companies in China, and he gave an assessment that he thinks it's now easier to get a permit and to build a mine in Canada than it will be in China, because the environmental restrictions in China are so tough that he doesn't think there'll be any new zinc mines built in China. They're actually investing in building a zinc mine in Canada. To the extent that people do analysis and think a lot of zinc will show up in the China market, apparently the locals don't think so.

Well, we met with a longtime friend vertex yesterday, the CEO of one of the very largest.

Base metal companies in China.

And.

He gave an assessment that you think there's it's now easier to get a permit and to build a mine in Canada than it will be in China, because the environmental restrictions in China are so tough that he doesnt think there'll be any new zinc mines.

Built in China.

And they are actually investing and building a zinc mine in Canada.

So to the extent that.

People do analysis and think a lot of zinc will show up.

In the China market, apparently the locals don't think so.

Timna Tanners: Okay, helpful. Thanks. The other two questions I had was, one, I was interested to hear about some of the RACE21 de-bottlenecking productivity, lower costs. In light of what Freeport elaborated on yesterday, does that also entail perhaps more volume, or is that just cost cutting at this point? I believe you're talking about some similar instead of de-bottlenecking and using big data. Just wondering again, if you were also looking at volumes, not just cutting costs. The second question just relates to just any update you can provide us on how you're tracking or thinking about Zafranal, San Nicolás, and NuevaUnión. Thanks.

Okay helpful. Thanks.

Two questions I had was one.

I was interested to hear about.

Some of the raise 21.

De bottlenecking productivity lower costs, but in light of what Freeport and elaborate on yesterday does that also entail perhaps more volume or is that just cost cutting at this point I believe you're talking about some similar in some de bottlenecking and using big data. So just wondering again. If you are also looking at volumes not just cutting cost and then the second question just relates to just any update you can provide us on how you're tracking or thinking about.

Safran and Nick and I will again thanks.

Okay.

Donald R. Lindsay: Okay. The short answer to your first question is both, but I'll turn it over to Andrew Milner to talk about the RACE21 part of it.

Don Lindsay: Okay. The short answer to your first question is both, but I'll turn it over to Andrew Milner to talk about the RACE21 part of it.

The short answer to your free.

Is both but I'll turn it over to Andrew Miller to talk about 3.1 part of it.

Timna Tanners: Okay.

Andrew Milner: Yeah, it is both. In the processing space, a lot of the value will come through the increase in productivity. In some of our other initiatives around analytics in the mining environment, Haul Cycle Analytics, maintenance analytics, et cetera, there'll be cost savings. What we're seeing is that there's going to be a program that we're building here that's in excess of 20 initiatives right now. We've got a great deal of confidence in delivering the CAD 150 million uplift in EBITDA this year. From our perspective, that is just the start. We're going to see huge increases in that over the next couple of years. We've got a program out to 2021, where that number of initiatives will probably reach in excess of 100 initiatives across a range of areas looking in the processing space, maintenance area, and other areas within the mining environment.

So it is buys in the in the processing space a lot of the value will come through the increasing productivity in some of our other initiatives around analytics in the morning environments Anvil, Sokolin analytics maintenance analytics et cetera.

There will be cost savings.

What we're saying is that there is going to be I.

A program that we're building here thats in excess of 20 initiatives right now we've got a great deal of confidence in delivering.

The 150 billion uplift, a 150 million uplift in EBITDA.

This year.

And from our perspective that is just the start so we are going to say.

Huge and increases in that over the next couple of days, we've got a program at 21.

Where that number of initiatives will probably reach in excess of 100 initiatives across a range of areas looking the processing side.

Lightness area.

In other areas within the mining environment.

Andrew Milner: It's in both areas.

So it's in both areas.

On your second question, then on project satellite and Zach for now within it.

Donald R. Lindsay: On your second question on Project Satellite and Zafranal within it, nothing has changed in our position there. We continue to optimize each of the five projects within that. Given what I've just said about QB2, we're so excited, that certainly reinforces that with the five projects in Satellite that at a point in time, we'll be looking for partners or sales or some sort of transaction to realize value from that. Given the weaker copper markets or just general commodity markets that we're in right now, we're in no rush to do so. We clearly don't need the cash. We'll take our time on that. It's certainly going to be something that would add value over the next year or two.

Don Lindsay: On your second question on Project Satellite and Zafranal within it, nothing has changed in our position there. We continue to optimize each of the five projects within that. Given what I've just said about QB2, we're so excited, that certainly reinforces that with the five projects in Satellite that at a point in time, we'll be looking for partners or sales or some sort of transaction to realize value from that. Given the weaker copper markets or just general commodity markets that we're in right now, we're in no rush to do so. We clearly don't need the cash. We'll take our time on that. It's certainly going to be something that would add value over the next year or two.

Nothing has changed in our position there we continue to optimize each of the five projects within that and given what I've just said about cube three being being so excited that certainly reinforces that with the five projects and satellite that.

At a point in time, we will be looking for partners or sales or some sort of transaction.

To realize value from that but given the weaker copper markets or just general commodity markets that we're in right. Now we are in no rush to do so we clearly don't need the cash so we will take our time on that but.

It's certainly going to be.

Going to be something that would add value.

Over the next year or two.

Timna Tanners: Okay. Thank you.

Okay. Thank you.

The next question is from Jackie principal scheme with BMO capital markets. Please go ahead.

Jen: The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.

Operator: The next question is from Jackie Przybylowski with BMO Capital Markets. Please go ahead.

Jackie Przybylowski: All right. Thanks. I just had a really quick one, I guess. You mentioned in the release that you've had a workforce lockout at Neptune, and I was wondering if you could give us a little bit more color on the circumstances around that.

All right. Thanks, I just had a really quick one I guess you mentioned in the release that you've had a workforce Lakota at Neptune and I was wondering if you could give us a little bit more color on on the circumstances around that.

Hi, Andrew Yes, it was the longshoreman law lock out on the.

Donald R. Lindsay: Andrew?

Don Lindsay: Andrew?

Andrew Stonkus: Yeah. It was the longshoremen lockout on the North Shore. The lockout itself was, I believe, only 8 hours, but it had an effect on the stacking up of rail cars or train sets. It had an impact of about 2 to 3 days for us on the Neptune situation. We had to divert trains to other ports to overcome that lockout situation.

The numbers north shore, so that was.

The lawsuit itself was I believe is only eight eight hours spent it has an effect on the.

The stacking up of railcars train sets.

Had an impact of about two to three days for us on the on the Neptune Neptune situation, we had through deferred trains to other ports to.

To overcome that local situation.

Jackie Przybylowski: Okay. The fact that you've had shipping challenges or delays at both Neptune and West Shore, I'm assuming, at this point, you've got a fairly good stockpile of coal at the port. Shipping going forward, assuming that the ports themselves are shipping out, it shouldn't be constrained by rail or other logistics at this point. Is that fair?

Okay, and then the fact that you've.

You've had shipping challenges or delays at both Neptune and what's your I'm assuming.

At this point, you've got a fairly good stockpile of coal at the port. So so shipping going forward, assuming that the ports unfolds or are shipping out it it shouldn't be constrained by rail or other logistics at this point.

Is that fair.

Andrew Stonkus: No, the port site inventories are where we would like them to be. They're at normal levels, and that's not impacting the loading of vessels on port inventories. We have higher inventories than normal at the mine sites, and that's what we still need to work on and draw down those inventories.

No.

Port Portside inventories are.

Where we'd like them to be either above normal levels and thats not impacting the.

Holding a vessel on the port inventories better we have higher inventories than normal up their mine sites and Thats, what we do you still need to work on and drawdowns inventories.

Donald R. Lindsay: We've had some reasonable progress lately that the service has been better.

Don Lindsay: We've had some reasonable progress lately that the service has been better.

We've had we've had some reasonable programs lately that the service has been better.

Jackie Przybylowski: Okay, great. Maybe just to follow up on something Chris Terry asked about earlier to Ron. When we're talking about the 30% distribution going forward, I think he had asked this, but I didn't quite catch the answer. Is it going to be a forward-looking free cash flow, so the estimate of what your free cash flow would be in the following year, or is it a backward looking, so the free cash flow that you've actually realized in the previous year? Can you just repeat that? Because I kind of missed the answer on that.

Okay, Great and maybe just a follow up on something Chris Terry asked about earlier to to Ron when we're talking about the.

30%.

Distribution going forward.

I think you asked this but I didnt quite catch the answer is it is it going to be a forward looking our free cash flow. So the so the estimate of what your free cash flow would be in the following year or is it a backward looking so the the free cash flow that you've actually realized in the previous year can you just repeat that because I I kind of missed the answer on that.

So it will be based on the current year.

Ron Millos: It'll be based on the current year. As Don mentioned, the board has looked at the supplemental distributions in November, and there's been some discussion whether they should wait until February. Whatever is decided, if it's done in November, it'll be based on the forecast for 2019. If it's done in January, it'll be looking backwards on what the actual results for 2019 were. Then, of course, the timing of the payments, whatever they might be, will be dictated by whenever the board makes that decision.

So.

As Don mentioned the board is looked at the supplemental distributions in November and there has been some discussion whether they should wait until February but whatever is decided if its done in November it will be based on the forecast for 2019 and if it's done in January it will be looking backwards.

On on what the actual results for 2019 were and then of course, the timing of payments.

Whatever they might be will be dictated by whenever the board makes that decision.

Jackie Przybylowski: Okay. That's great. Thanks very much. That's it for me.

Okay. That's great. Thanks, very much that's it for me.

Donald R. Lindsay: What I would add, Jackie, is that I would anticipate that the buyback will continue throughout the year. That when we finish CAD 1 billion, that there'll be more allocated by the board, because our philosophy is we want to have that buyback in place year in and year out.

Don Lindsay: What I would add, Jackie, is that I would anticipate that the buyback will continue throughout the year. That when we finish CAD 1 billion, that there'll be more allocated by the board, because our philosophy is we want to have that buyback in place year in and year out.

What I would add Jackie is that I would anticipate that the buyback will continue throughout the year.

At.

When we finish the billion dollars that.

There will be more allocated by the board because our philosophy is we want to have that buyback in place here and in Europe .

Jackie Przybylowski: Got it. Okay. Thanks, Don.

Got it okay. Thanks.

The next question is from Lucas pipes with B. Riley FBR. Please go ahead.

Jen: The next question is from Lucas Pipes with B. Riley FBR. Please go ahead.

Operator: The next question is from Lucas Pipes with B. Riley FBR. Please go ahead.

Lucas Pipes: Hey, good morning, everyone, and congrats on a good quarter and good updates. I wanted to follow up on Neptune. In the release, it mentioned an additional project scope. Could you elaborate on what do you mean by that, and is the targeted capacity still the same as it was before? Thank you.

Hey, good morning, everyone and congrats on a on a good quarter and good updates.

I wanted to follow up on Neptune in the release it mentioned an additional project scope.

Could you elaborate on on what do you mean by that is that targeted capacity still the same as it was before thank you.

So Andrew or Alex who was.

Donald R. Lindsay: Andrew or Alex, who wants to?

Don Lindsay: Andrew or Alex, who wants to?

Alex Christopher: I think Alex.

Andrew Stonkus: I think Alex.

Donald R. Lindsay: Alex will do it.

Don Lindsay: Alex will do it.

Alex Christopher: Yeah. In terms of target capacity, the target capacity is still the same target capacity. The additional costs, I'd say that increase is really a function of several factors. We've advanced our engineering design, which is now about 78% complete. We've advanced our efforts in our contracting and procurement, which is now 60% complete. Our construction in the field is about 32% complete. All of these kind of result in an advanced definition of the project scope, the material quantities, the subsurface geotechnical conditions. As well, we have better line of sight on market pricing for equipment materials and installation costs. Those are the things that contribute to the additional CapEx increase that you see.

Alex Yes in terms of target capacity to target capacity is still the same target capacity.

The additional costs I'd say that.

That increase is really a function of several factors, we've advanced or engineering design, which is now about 78% complete.

We advanced our efforts in our contracting and procurement was now 60% complete and then or construction in the fields, but booked 32% complete so all of these kind of resulted in an intense definition of the project scope the material quantities the sub surface geotechnical conditions as well, we have better line of sight on market pricing for equipment materials and installation costs.

So those those are the things that contribute to the to the the additional capex increase that you see.

Lucas Pipes: That's helpful. Thank you.

Okay. That's helpful. Thank you yep.

Donald R. Lindsay: Just to say that we announced the capacity at 18.5 million tons, but the people involved think that's a very conservative number.

Don Lindsay: Just to say that we announced the capacity at 18.5 million tons, but the people involved think that's a very conservative number.

We announced the capacity to 18, and a half million tons, but the people involved I think thats a very conservative number.

Interesting any sense on what kind of a best.

Lucas Pipes: Interesting. Any sense on what kind of a best guess would be on the max capacity if 18.5 is conservative?

Best guess would be on the Max capacity, if if taken and half is conservative.

Donald R. Lindsay: No, best to leave it at that.

Don Lindsay: No, best to leave it at that.

No we will best to leave it at that.

Lucas Pipes: Okay. Quick clarification on your capital allocation framework. I assume, when you speak about committed enhancement and growth CapEx being subtracted, that is only the net contribution. Things like project financing would be added back. When it comes to QB 2, it's really a minimal track on this 30% potential distribution or at least 30% contribution over the next couple of years. Is that right?

Okay.

Quick clarification on.

Capital allocation framework.

I assume.

When you speak about committed enhancement and growth Capex being subtracted that it's only the net contribution so things like gap project financing would be added back. So when it comes to QB two it's really a minimal Jack on this 30% potential distribution or at least 30% contribution.

Over the next couple of years is that right.

That's correct, we would add the contributions from Sumitomo and the project financing would be pulled out.

Ron Millos: That's correct. The contributions from Sumitomo and the project financing would be pulled out.

Donald R. Lindsay: Yeah. I mean, bottom line, Lucas, is we think if you model this on your forecast for 2020, it's going to look pretty good.

Don Lindsay: Yeah. I mean, bottom line, Lucas, is we think if you model this on your forecast for 2020, it's going to look pretty good.

Yes, I mean bottom line Lukas we think if you model. This on your forecast for 2020 is going to look pretty good.

Lucas Pipes: I would agree with that. Maybe one last one on RACE21. The way I understand it, the $150 million is in guidance for 2019. Would it be kind of netted out against other cost pressures so that we wouldn't be seeing, for example, cost guidance in the coal segment come down? How should we think about that? Where would we find the $150 million? I guess it's sprinkled in, but if you could maybe elaborate, that would be helpful.

I would.

I agree with that maybe one last one on race 21.

The way I understand it.

150 million is in guidance for 2019.

Would it be kind of netted out against other cost pressures. So that we wouldn't be seeing for example cost guidance in the coal segment come down how should we think about that when we find the 150 million I guess its sprinkled in but if you could maybe elaborate that that would be helpful.

Donald R. Lindsay: Our intention in February when we report the results for the year would be to report more detailed results of RACE21 so you can see where the 150 came from, the 12 or 14 or 15 different projects and the source of that.

Yes, so our intention in February when we report the results for the year would be to report more detailed results of raise 21. So you can see where that 150 came from the.

Don Lindsay: Our intention in February when we report the results for the year would be to report more detailed results of RACE21 so you can see where the 150 came from, the 12 or 14 or 15 different projects and the source of that.

12, or 14 or 15 different projects and the source of that.

Got it okay, well, thank you very much and best of luck.

Lucas Pipes: Got it. Okay. Well, thank you very much, and best of luck.

Donald R. Lindsay: Thank you.

Don Lindsay: Thank you.

Thank you.

The next question is from Brian Macarthur right.

Jen: The next question is from Brian MacArthur with Raymond James. Please go ahead.

Operator: The next question is from Brian MacArthur with Raymond James. Please go ahead.

Please go ahead.

Brian MacArthur: Good morning. Sorry, I just want to go back to the water treatment. There's a statement in here saying, "We expect active water treatment will continue to be required in some locations when SRFs aren't working." Is that now just referring back to the current AWT plant that's in place, i.e., you can't convert it? Because I think you were mentioning you think you can make all the plants going forward SRFs, or is there something different in there?

Hi, Good morning, sorry, I just want to go back to the water treatment Theres a statement in here, saying, we expect active water treatment will continue to be required in some locations when srs aren't aren't that work has that now just referring back to the current.

ADW T plan. That's in place are you can't convert it because I think you are mentioning you think you can make all the plants going forward.

Srs or is there something different in there.

Okay. So I'll start and then we've got a couple of people wanting to jump in here.

Donald R. Lindsay: I'll start, and then we've got a couple people wanting to jump in here. We're very, very pleased with the government's endorsement of the SRF. We think it's a much better technology. We know it's a much better technology because it's been proven and running for the last year. That technology and technologies similar to that, we think will be what will be recommended in all the different things going forward. We won't know until we get to each of those different situations and have to get government approval and endorsement. We will start with SRF or like technology, and only if some circumstance presents itself that we weren't going to get approval for that would we go back to a tank-based technology. We really don't think that's going to happen. In terms of disclosure, we have to leave all the options open.

Don Lindsay: I'll start, and then we've got a couple people wanting to jump in here. We're very, very pleased with the government's endorsement of the SRF. We think it's a much better technology. We know it's a much better technology because it's been proven and running for the last year. That technology and technologies similar to that, we think will be what will be recommended in all the different things going forward. We won't know until we get to each of those different situations and have to get government approval and endorsement. We will start with SRF or like technology, and only if some circumstance presents itself that we weren't going to get approval for that would we go back to a tank-based technology. We really don't think that's going to happen. In terms of disclosure, we have to leave all the options open. Robin, did you want to add anything on that?

So.

We're very very pleased with the government's endorsement of the Srl. We think it's a much better technology. We know it's a much better technology, because it's been proven in running for the last year and so that technology and technology similar to that we think will be what will be recommended and all the different things going forward, but we won't know until we get to each of those different situations and have to get government approval and.

Endorsement, we will start with Srs or like technology, and only have some circumstance presents itself that.

That we weren't going to get approval for that would we go back to a tank based.

Technology, but but we really don't think thats going to happen, but in terms of disclosure we have to leave all the optional.

Donald R. Lindsay: Robin, did you want to add anything on that?

Probably did you want to add anything on that or is that okay.

Robin B. Sheremeta: No.

Robin Sheremeta: No.

Brian MacArthur: Okay. Just then when we did the investor day, they talked about between $2,000 and through 2018 to 2022, there was $600 coming down to $650 or going down from $650 to $600 in capital, if you could do this. Was that just for this Elk Valley plant or were there other plants in there? That is to say, now that we think we can do this, assume we can do it, that $650 will come down to like $400 or something?

Don Lindsay: Okay.

Brian MacArthur: Just then when we did the investor day, they talked about between $2,000 and through 2018 to 2022, there was $600 coming down to $650 or going down from $650 to $600 in capital, if you could do this. Was that just for this Elk Valley plant or were there other plants in there? That is to say, now that we think we can do this, assume we can do it, that $650 will come down to like $400 or something?

So Jeff then when we did the.

Investor day talking about between 2000 and.

True 18 to 22, there was 600 coming down to 650.

Or six going down from 650 to 600 capital. If you could do this it was that just for the ALP few plant or were there other plants in there that is to say now that we think we can do this and so we can do with that.

You know Thats 650 will come down to like 400 or something.

Oh, the 600 to 650 would be Srs, replacing now that that one of them was the Srs replacement what else you. The other would be the replacement of the fording River, North Platte, which would be the second tank based platform.

Donald R. Lindsay: No, the 600 to 650 would be SRFs replacing one of them. One of them was the SRF replacement at Elkview. The other would be the replacement of the Fording River North plant, which would be the second tank-based plant. It would be replaced with an SRF. We know we have capacity at that end of the valley to do that, and that's what would create the 600 to 650.

Ron Millos: No, the 600 to 650 would be SRFs replacing one of them. One of them was the SRF replacement at Elkview. The other would be the replacement of the Fording River North plant, which would be the second tank-based plant. It would be replaced with an SRF. We know we have capacity at that end of the valley to do that, and that's what would create the 600 to 650.

It would be replaced with an Srs and we know we have capacity at that into the valley to do that.

And Thats, what would create the 600 to six ft.

But it wouldn't be better than that because you're sort of saying the capital costs are 50% say, we can do that second tank based one at Frf does that not bring that capital number down.

Brian MacArthur: It wouldn't be better than that because you're sort of saying the capital costs are 50%. If you can do that second tank-based one at SRF, does that not bring that capital number down?

Donald R. Lindsay: Well, the capital costs are 20%. The operating costs are 50%.

Don Lindsay: Well, the capital costs are 20%. The operating costs are 50%.

Oh, the capital costs are 20% operating costs are 50% okay.

Brian MacArthur: Okay. That 20.

Let me, let me take another shot at that.

Donald R. Lindsay: Let me take another shot at that. In the Elkview case, if we had to have built a tank-based plant, that would have been $400 million plus.

Don Lindsay: Let me take another shot at that. In the Elkview case, if we had to have built a tank-based plant, that would have been $400 million plus.

In the few case, if we had to have built.

Tank base plant that would have been $400 million plus and now order of magnitude of the 100 million or something like that in the fording River South plant Robin that would have been 400 to 500 and now we believe it's not approved yet, but we believe it will go with us are up there as well.

Brian MacArthur: Right.

Donald R. Lindsay: Now order of magnitude, we think that'll be $100 million or something like that. In the Fording River South plant, Robin, that would have been $400 to 500 million. Now we believe, it's not approved yet, but we believe it will go with SRF there as well.

Don Lindsay: Now order of magnitude, we think that'll be $100 million or something like that. In the Fording River South plant, Robin, that would have been $400 to 500 million. Now we believe, it's not approved yet, but we believe it will go with SRF there as well.

Fraser Phillips: Fording River North.

So fortys 40 river. So these are substantial chunks of capital that that if they were in your model they should be taking on the mall.

Donald R. Lindsay: Yeah, Fording River North. These are substantial chunks of capital that if they were in your model, they should be taken out of the model.

Don Lindsay: Yeah, Fording River North. These are substantial chunks of capital that if they were in your model, they should be taken out of the model.

Right. That's all I, just trying to figure out the magnitude so thats very helpful doing it that way.

Brian MacArthur: Right. That's why I was just trying to figure out the magnitude. That's very helpful doing it that way. One other quick question, just on the capital allocation. We keep talking about November or February. I assume this is going to be an annual decision, not a quarterly decision, i.e., like some people put in backward-looking cash flow and payout 30% excess. Is this going to be a one-time year thing and the share buyback will be throughout the year to give support? Is that kind of the way you're thinking here so you don't get a total variable dividend if you go that way all the time?

One other quick question just on the capital allocation.

We keep talking about November or February so I assume this is going to be a.

Annual decision not a quarterly decision he like some people put in fact base looking cash flow and payout, 30% access is going to be a one time year thing and the share buyback will be throughout the year to get support is that kind of what you're thinking here. So you don't get a total variable dividend. If you go that way all the time.

Hi.

Donald R. Lindsay: In a normal year, yes, the way you described it would be how it would work. The board has the flexibility to do what it wants at any time. If we sold an asset, for example, they may decide to do something in mid-year, but generally how you describe it is the way it would work.

Don Lindsay: In a normal year, yes, the way you described it would be how it would work. The board has the flexibility to do what it wants at any time. If we sold an asset, for example, they may decide to do something in mid-year, but generally how you describe it is the way it would work.

In a normal year, yes. The way you described it would be how it would work I mean board has the flexibility to do what it wants today time must be sold an asset for example, they may decide to do something in mid year, but.

Generally how you describe it is the way it would work.

Great. Thanks, very much Don.

Brian MacArthur: Great. Thanks very much, Don.

Hi, operator Jen.

Donald R. Lindsay: Thank you.

Don Lindsay: Thank you.

Fraser Phillips: Operator? Jen?

Jen: Yes.

Operator: Yes.

Yes, I think we're at.

Fraser Phillips: I think we're past time here, and we'll hand it over to Don for his closing comments.

I think we're past time here and we'll hand it over to Don for his closing comments.

Donald R. Lindsay: Okay. Well, thanks, Fraser, and thank you all for joining us this morning. As I said, we're very excited here. There's a number of really important good news items that we've just reviewed. The SRF government endorsement is a very big deal in terms of capital savings and operating cost savings for the future. Race 21 is off to a racing start. I was visiting 4 of our operating sites last week, got to speak to the engineers rightly on the front lines who are implementing the things, and they are so excited. It's fantastic to see the passion with which they speak about these projects and the potential for it. Of course, the buyback's up to CAD 1 billion and going strong. Lots of excitement ahead. Thank you all. We'll speak to you again, I guess, next in October. Thank you.

Don Lindsay: Okay. Well, thanks, Fraser, and thank you all for joining us this morning. As I said, we're very excited here. There's a number of really important good news items that we've just reviewed. The SRF government endorsement is a very big deal in terms of capital savings and operating cost savings for the future. Race 21 is off to a racing start. I was visiting 4 of our operating sites last week, got to speak to the engineers rightly on the front lines who are implementing the things, and they are so excited. It's fantastic to see the passion with which they speak about these projects and the potential for it. Of course, the buyback's up to CAD 1 billion and going strong. Lots of excitement ahead. Thank you all. We'll speak to you again, I guess, next in October. Thank you.

Okay, well thanks, Richard Thank you all for joining US. This morning as I said they were very excited here. There is a number of really important good news items that we've just reviewed.

Yes, RF government endorsement is a very big deal in terms of.

Capital savings and operating cost savings for the future reached 21 is off to a racing started as I was visiting four of our operating sites last week got to speak to the engineers rightly on the on the front lines, who are implementing these things and they are so excited is fantastic to see the passion was lets say speak about.

These projects and the potential for it and of course, the buybacks up $2 billion and going strong so.

Lots of excitement ahead. Thank you all will speak to you again I guess next in October .

Thank you.

The conference has now ended please disconnect your lines at this time. Thank you for your participation.

Jen: The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

Operator: The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.

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