Teck Resources Ltd

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, Alana. Good morning, everyone, and thank you for joining us for Tech's third quarter 2019 results conference call. Before we begin, I would like to draw your attention to the caution regarding forward-looking statements in 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 statements. 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, our President and CEO.

Thank you, Fraser, and good morning, everyone. I will begin on slide three with highlights from our third quarter, and I'll be followed by Ron Millos, our CFO, who will provide additional color on our financial results. We will conclude the Q&A session where Ron and I and additional members of our senior management team would be happy to answer any questions. But before we get into the quarter, I wanted to touch for a moment on the recent civil unrest in Chile. Chile is a very important tech, not only for our business, but also because of the strong connection through our employees, our communities, and stakeholders. This is clearly a very difficult time for the Chilean people, and our thoughts are with all of those impacted. We have taken steps early on to ensure tech employees are accounted for and safe. We've had no issues to date at any of our sites and work at the QB2 project is continuing. We will continue to closely monitor events as they develop with our top priority being the safety of our people. Turning to the highlights from our third quarter. We continue to execute our straightforward strategy of running our operations safely, efficiently, and sustainably to generate cash, successfully execute on our QB2 project, and return excess cash to shareholders. QB2 construction is moving forward with over 5,000 people actively working on site across the six major construction areas. We are building considerable value for shareholders through the development of this world-class copper project. First production is targeted for the fourth quarter of 2021. We continue to advance our Race 21 innovation-driven efficiency program to generate an initial $150 million in annualized EBITDA improvements by the end of 2019 and significant additional improvements beyond that year. We were also pleased to be named to the Dow General Sustainability World Index for the 10th straight year. This indicates that our sustainability practices are in the top 10% of the 2,500 largest companies in the S&P Global Broad Market Index. In fact, Tech was the top-ranked mining company on both the world and the North American indices. Our financial position remains strong, with around $6.8 billion in liquidity currently. On Tuesday, we extended the maturity date of our U.S. $4 billion committed credit facility to November of 2024. And in the third quarter, we achieved a number of operating records in steelmaking coal, and we continue to generate solid operating results in both our copper and zinc business units. Over the past few years, we have been focused on maximizing production to capture margin during periods of higher commodity prices. However, current global economic uncertainties are having a significant negative effect on the prices of our products, particularly steelmaking coal, and as a result, We are focusing our attention on our Race 21 program to improve efficiency and productivity all across our business, and also the execution of our priority project at Neptune Terminals and the development of the QB2 project, which is of course a key component of Tech's future growth. We've also implemented a company-wide cost reduction program to reduce spending on our capital and operating costs through 2020. We are targeting reductions of approximately $500 million in spending through to the end of 2020. Our target cost reductions do not include initiatives that would result in a reduction in the production volumes of our commodities or that could adversely affect the health and safety of our people. And Ron will speak to our cost reduction program in further detail a little later. Turning to our financial results on slide four, the decline in commodity prices in the second quarter of 2019, and particularly in steelmaking coal, had a significant negative impact on third quarter profitability. Benchmark steelmaking coal prices declined from about $210 U.S. per ton in the first quarter of the year to $178 U.S. in the third quarter, and then current spot market prices are just under $150 per ton, having been as low as $128 U.S. per ton in the third quarter. Our gross profit in the third quarter declined by $222 million compared with a year ago almost entirely due to lower prices and a decrease in sales volumes in our steel making coal business unit of around 600,000 tons. Bottom line adjusted profit attributed to shareholders was $403 million or $0.72 per share on both a basic and a fully diluted basis. Details of the quarter's earnings adjustments are on slide five. And as you can see, there were no individually significant adjustment items in the third quarter. There are also a number of additional charges that we do not adjust for, which total $12 million on an after-tax basis or $0.02 per share on a diluted basis. I will now run through highlights by business units, starting with Steelmaking Coal on slide 6. In the third quarter, sales came in below guidance due to material handling issues and planned construction outages at Neptune terminals. Efforts have been focused on overcoming the materials handling issues and significant progress has been made. Importantly, demand remains strong in the quarter. Q3 sales could have exceeded the high end of our guidance range had there been no logistical issues. Production was higher than last year, supported by production records at our Line Creek and Green Hills operations, and also strong processing throughput at other operations. Looking forward, we expect sales of approximately 6.2 to 6.4 million tonnes in Q4. Planned outages at both Ridley terminals and Neptune terminals will result in approximately 40 lost train dumping or berthing days in the quarter, and that will of course affect our sales volumes. We expect adjusted site costs of sales to be lower in Q4, which is in line with our annual guidance. However, given the current economic uncertainty, pressure on steelmakers margins, and weakness in steelmaking coal prices, We have decided to complete the majority of our major plant outages early in 2020, reducing our steelmaking coal production in the first half of the year, and then increasing production in Q3 and Q4. And as a result, we expect our cost of sales to be significantly higher in Q1 2020 than in Q4 2019, and then to decrease significantly in the second half of 2020 When we are back at full production levels. However, overall, we expect our cost of sales to be lower in 2020 than in 2019. I think this is a very important point because we're moving the maintenance shutdowns to the first part of the year, while coal prices are reasonably weak, but it also accelerates our ability to increase the production at Elk View by 2 million tons, and that 2 million tons will be much lower costs and Cardinal River that will be headed towards shutdown, which is a higher cost operation. So the lower production at the beginning of the year and the consequently higher cost is actually a good news story because it means that we get to the longer term, higher production, lower cost sooner. Turning to our copper business unit, our Q3 results are summarized on slide seven. Copper production was up 10% year-over-year, primarily due to higher copper grades and the mill throughput and recoveries at Highland Valley, which is in line with guidance. Total cash unit costs before byproduct credits were $1.62 US in Q3, down from $1.75 a year ago. However, net cash unit costs after byproduct credits were slightly higher than last year due to the lower zinc sales volumes and zinc prices. In August, we signed a new three-year collective agreement with the supervisory union at Carmen de Andocoyo. Thereafter, a regulated bargaining process with the workers' union commenced in September, but even after mediation, we did not result in an agreement, and the workers' union commenced strike action on October 14th. Going forward, we expect continued improvements in throughput, grades, and recoveries at Highland Valley. Our full-year copper production guidance is unchanged despite the strike at Carmen de Andacoyo. And our full-year operating cost guidance is also unchanged. Moving on to slide 8, I'd like to provide a quick snapshot of our progress on QB2 over the last quarter. Construction in QB2 continues with over 5,000 people actively working across the six major construction areas on project with all major contractors mobilized. Earthworks are well advanced in all areas, including construction of the tailings dam facility. Concrete installation is progressing very well in both the concentrator and the port areas, with approximately 20,000 cubic meters placed to date. The project continues to target construction completion in the fourth quarter of 2021, with ramp-up to full production expected during 2022. As of the end of September, we had expended approximately $650 million U.S., and approximately 65% of the total budget is committed under contracts and purchase orders to date. Engineering, contracting and procurement activities are all well over 90% complete and a definitive capital estimate is planned for Q1 2020. The photo on the right shows progress of concrete and rebar for the mill foundations in the grinding area of the concentrator. Slide 9 shows the concentrator area. This photo shows the progress we've made in the grinding area of the Constraire where we've been pouring concrete for the two sag and four ball mills since May. The mills have arrived in country and we will commence initial installation in the fourth quarter. And in the background you can see works related to the core source stock funnel and the reclaimed tunnel where we are mobilized and commencing initial concrete placement. And we expect to start structural steel erection in the Constraire area this quarter. Moving to the flotation area of the concentrator on slide 10, you can see the foundations for the 14 650 cubic meter rougher flotation cells. Mechanical components are arriving at site shortly in preparation for the start of installation. We are also advancing concrete placement for the thickener tanks and other components of the mill. And on slide 11, you can see the port site where we are progressing both onshore and offshore activities following some delays as we were awaiting local permits. The area in the center of the photo shows progress in the desalination plant with rebar and concrete placement for the foundations. And overall, the project team is working effectively with the EPCM contractors and major contractors to advance construction across all areas of the project. Our zinc business unit's results are summarized on slide 12. As a reminder, antimony and zinc-related financial results are reported in our copper business unit. Red Dog's sales of zinc and concentrate were 171,000 tons, which is above the guidance of 165,000 to 170,000 tons. Our net cash unit costs in the quarter reflect the benefit of lead and concentrate sales from Red Dog, partially offset by the higher 2019 benchmark terms for treatment and refinery charges. Looking forward, we have lowered our full-year guidance for refined zinc production at trail operations to 275,000 to 285,000 tons. We expect Red Dog shipping season to be complete in early November with all available concentrate shipped from site. And in Q4, we expect Red Dog's contained zinc sales to be 160,000 to 165,000 tons, reflecting the normal seasonal pattern. Our energy business unit results are summarized on slide 13. Gross profit declined in Q3 from Q2, primarily reflecting the decline in the West Texas Intermediate price. and the widening of heavy differentials. Production and unit operating costs continue to reflect the Government of Alberta's production curtailments, partially offset through our purchase of curtailment credits. The production curtailments have been extended through December 2020 with an option to terminate earlier. Despite the announced extension of curtailments, we continue to expect to be at the low end of our annual production guidance and the high end of our unit operating cost guidance for the full year. With that, I'll pass it over to Ron for some comments on our financial results.