Teck Resources Ltd

Thank you for standing by. Welcome to Tech Resources Q1 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 Tuesday, April 23, 2019. I would now like to turn the conference call over to Mr. Fraser Phillips, Senior Vice President, Investor Relations, and Strategic Analysis. Please go ahead.

Thanks very much, Manish. Good morning, everyone. Thank you for joining us for Tech's first quarter 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. Tech 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 Lindsey, President and CEO.

Thank you, Fraser, and good morning, everyone. I'll begin on slide three with some highlights from our first quarter results, and I'll be followed by Ron Millis, our CFO, who will provide some additional color. We will conclude with a Q&A session where Ron and I and several additional members of our senior management team would be happy to answer any questions. We delivered a solid operating performance in the first quarter despite some fairly challenging weather, severe winter weather, which affected a number of our operations. As a result, we have no changes to our 2019 guidance. At the same time, we achieved a number of important milestones during the quarter. We completed the QB2 partnership transaction with Sumitomo Metal Mining and Sumitomo Corporation, who we will refer to collectively as Sumitomo. And upon closing, Sumitomo made a $1.3 billion Canadian or $966 million US contribution to the project, and a further $307 million US contribution is expected over the remainder of the year. The QB2 partnering transaction and financing plan dramatically reduce our equity requirements for the project to just under $700 million, excluding escalation, and with no cash required from tech until late 2020. Work on the project financing for QB2 is progressing well, and we expect to sign the loan agreement by the end of April. Following the signing, the board will consider additional cash returns to shareholders, and that's likely at the May board meeting, end of May. Also in the first quarter, we reached agreement with POSCO Canada to substantially increase the royalty that they pay on their 20% share of Green Hills coal production effective February 11th. At benchmark steelmaking coal prices of approximately $200 US per ton, the royalty payment will increase by around $90 million annually. The increase in revenue amounted to $13 million in the first quarter already. We were pleased to be upgraded to investment grade by four agencies in the quarter. As a result, We have now cancelled $1.1 billion in letters of credit. We continue to return significant cash to shareholders. We purchased $180 million of Class B shares, and we also paid $28 million in dividends in the first quarter. Last November, the Board directed management to apply $400 million to the purchase and cancellation of shares, and so far $348 million has been spent to date. Finally, we remain in a very strong financial position with approximately $9.1 billion in liquidity, including $2.5 billion in cash, $1.3 billion of which is in Chile for the development of the QB2 project. Turning to our financial results on slide four, in the first quarter, revenues were $3.1 billion and gross profit before depreciation and amortization was $1.4 billion. After adjusting for unusual items, Adjusted EBITDA was $1.3 billion in the quarter and bottom line adjusted profit attributable to shareholders was $568 million or a dollar a share and that would be 99 cents per share on a fully diluted basis. Details of the quarter's earnings adjustments are on slide five. Primary adjustment this quarter was a $51 million gain on our debt prepayment option and other than that it was a fairly clean quarter. I will now run through some highlights by business units starting with steelmaking coal on slide six. We continue to generate significant cash flow in coal. Sales were at the midpoint of our guidance range for the quarter at 6.2 million tons, reflecting solid demand. Steelmaking coal spot prices remain above $200 US per ton. With steel pricing and world economies remaining sound, indications are that demand for steelmaking coal will continue to grow while supply issues continue to support prices. A substantial increase in the royalty paid by POSCO Canada on their 20% share of Green Hills production came into effect on February 11th and increased our first quarter revenue by around 13 million. First quarter production was around 100,000 tons lower compared to the same quarter last year. Significant periods of cold weather negatively affecting the supply chain, negatively affected the supply chain but we saw improvement in the latter half of the quarter. Now with Coal Mountain moving to closure, Elk View has more than offset the reduction in Coal Mountain's production through improved plant performance and the decision to utilize inter-site processing capacity. Operating costs increased in the first quarter relative to Q1 2018 as anticipated. As this reflects our decision, our deliberate decision to incur higher costs in order to capture additional margin given the current pricing environment. Looking forward, we expect second quarter sales of approximately 6.4 to 6.6 million tons. Turning to our copper business unit, our Q1 results are summarized on slide seven. While the copper price averaged 282 US per pound in the quarter, essentially unchanged from the fourth quarter and down 11% from the first quarter of 2018, The price did trade above US$3 per pound during the quarter due to a number of mine and smelter production issues. Copper fundamentals remain strong in our view. Total reported global copper exchange stocks are now estimated to be 7.2 days of global consumption and that is below the estimated 25-year average of 11.9 days of consumption. Overall in the first quarter, our gross profit before depreciation and amortization in copper decreased by $132 million compared with a year ago, and that's primarily due to lower commodity prices. Copper production was down modestly compared with a year ago, primarily due to lower copper ore grades at Carmen de Andocoyo and Highland Valley, which was anticipated in the respective mine plans. Our total cash costs before by-product credits in the first quarter were $1.85 US per pound, that's 9% higher than the same period a year ago, primarily due to the effect of lower production volumes. Lower zinc sales volumes and prices combined with significantly lower MOLLE sales resulted in reduced by-product credits, and as a result, cash costs after by-product credits of $1.55 US per pound in the first quarter were higher than the $1.15 achieved in the first quarter of last year. Looking forward, though, copper grades at Highland Valley are expected to gradually improve through the remainder of 2019. The installation of the additional ball mill at Highland Valley is progressing ahead of schedule and under budget, and we expect startup in Q2. and at QB2 we continue to ramp up field activities and award major contracts. Earthworks activities are fully underway utilizing the existing mine fleet and third party contractors. Engineering, contracting and procurement activities are currently 85%, 91% and 82% complete respectively. Our zinc business units results are summarized on slide eight. As a reminder, Antamina Zinc-related financial results are reported in our Copper Business Unit. The Zinc market remains very tight. Zinc prices increased steadily throughout the quarter as LME inventories continued to be drawn down to historically low levels. Reported Zinc stocks held on the LME and the Shanghai exchanges are now estimated at just 4.1 days of global consumption and that is well below the 25-year average of 22.3 days. Once again, 4.1 days of global consumption versus the 25-year average of 22.3 days. That's a tight market. Overall in the first quarter, our gross profit before depreciation and amortization in zinc decreased by 91 million compared with a year ago due primarily to lower zinc prices. At Red Dog, very severe winter weather closed the port road which impacted production. A production recovery plan is in place and we expect to make it up in the remainder of the year. Sales were unaffected and came in above our guidance range at 131,000 tons. On the cost side, our net cash unit costs for mine zinc was down 11 cents US per pound from Q1 2018, primarily due to historically low treatment and refining charges. but what goes around comes around as you'll see as we get to trail where profit at trail operations improved from Q4 2018, the results were negatively affected by unplanned maintenance. Zinc treatment charges have recently increased and are expected to have a positive impact on trail operations in the second half of 2019. Construction of the number two acid planted trail was completed under budget and ahead of schedule. Commissioning and ramp up is in progress right now. Looking forward, we expect Red Dog contains zinc sales of 80,000 to 85,000 Q2 and that reflects the normal seasonal pattern due to the chipping season. Our energy business unit results are summarized on slide nine. There was a significant narrowing of Canadian heavy blend differentials for Western Canadian Select and an increase in global benchmark and gold prices compared to Q4 in 2018. This is reflected in our higher average realized price of $42.12 U.S. per barrel of blended bitumen. Overall, gross profit before depreciation and amortization from our energy business unit was positive at $22 million. And this is despite being affected by lower production due primarily to the government of Alberta's curtailments that came into effect on January 1, 2019. Port Hills production was lower than design capacity due to the production limits imposed by the government of Alberta and also due to unplanned maintenance. Our share of bitumen production was 30,878 barrels per day, which was within our guidance range of 30,000 to 32,000 barrels per day for Q1. Operating costs of 29.42 Canadian per barrel of bitumen in Q1 were also affected by the lower production. With the extension of the Government Alberta production curtailments through June, we expect our share of bitumen production in the second quarter to be in the range of 30,000 to 32,000 barrels per day. With the lower production, we expect second quarter unit operating costs to be similar to the first quarter of this year and to remain within our original guidance range of $26 to $29 Canadian per barrel of bitumen for the year. For the full year, there is no change to our guidance, though with the extension of the curtailments, we now expect to be in the mid to low end of our annual production guidance range of 12 million to 14 million barrels of bitumen. With that, I'll pass it over to Ron Mills for some comments on our financial results.