Teck Resources Ltd

All participants, please stand by. Your conference is ready to begin. Ladies and gentlemen, thank you for standing by. Welcome to Tech's third quarter 2020 earnings release conference 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, October 27, 2020. 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, Melanie. Good morning, everyone, and thank you for joining us for Tech's third quarter 2020 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 Lindsay, our President and CEO.

Well, thanks very much, Fraser, and good morning, everyone. Thank you for joining us this morning. I will begin on slide three with our third quarter highlights. I'll be followed by Ron Millis. are retiring CFO who will provide additional color on our financial results. We will then 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. Before I start, I do want to say that after 25 years with tech, this is expected to be Ron's last quarterly conference call. I just want to personally and on behalf of our whole team thank Ron for his many outstanding contributions to tech over his 25 years with the company. and we wish him the very best in his retirement. Thank you, Ron. Jonathan Price, Texas News Senior Vice President, Chief Financial Officer, will join me in presenting our fourth quarter 2020 results in February. So these continue to be what I guess many have called unprecedented times as the world adapts to a new normal with COVID-19. And despite the ongoing challenges, our financial performance recovered strongly from the second quarter that clearly was very significant and negatively impacted by COVID-19. And despite the decline in realized steelmaking coal prices that you will have seen, we did post gains in profitability and operating cash flows. We made significant progress during the quarter on the execution of our major projects, including advancing the Neptune terminals upgrade in line with the schedule and the budget, and also safely ramping back up construction at our QB2 project. We've also made progress in reducing costs throughout the supply chain improvements and our cost reduction program and as a result of Raise 21. Our adjusted site cost of sales in steelmaking coal is expected to be below $60 Canadian per ton in December or around $45 US per ton at the mine site. And across our business, our people have adapted to the new normal of operating through the pandemic Staying focused on health and safety while continuing to responsibly produce materials that are essential to the global economic recovery. Turning to our financial results on slide four. In the third quarter, revenues were $2.3 billion, and gross profit before depreciation and amortization was $703 million. Bottom line adjusted profit attributable to shareholders was $130 million or $0.24 per share on both a basic and a fully diluted basis. While these results reflect the negative effect of COVID-19 on the prices and sales of the products compared with the third quarter last year, they also represent a strong recovery from Q2 2020, which was significantly negatively impacted by the pandemic. I'll now run through some key updates for the quarter, starting with our steelmaking coal business on slide five. We are continuing to successfully restructure our cost base due to our planned decline in script ratio and due to the Elk View Plant expansion and due to the closure of our Cardinal River operations, as well as our cost reduction program, CRP, and our Race 21 programs. Our adjusted site cost of sales are expected to decrease over the remainder of 2020 and to be below $60 per tonne in the month of December. Our strip ratio was 11.4 to 1 in 2019 last year. We expect it to decline to around 10 to 1 throughout the fourth quarter and into 2021. We completed the major expansion of our LQ operations plant in Q2 despite the challenges of the pandemic. And that plant now has the capacity to produce 9 million tonnes annually which enables us to replace higher cost production from our Colden River operations with a higher quality coal produced at a lower cost from our Elk View operations. At the same time, we're nearing the end of the major capital deployment phase for Neptune, which will end next quarter, and the water treatment facilities at both Elk View and Colden River. So three capital projects that will be coming to an end by the end of next quarter. Turning to our Neptune upgrade project on slide six, we continue to advance the project in line with the previously announced capital estimate and schedule. The planned five-month shutdown of terminal operations was successfully completed in September and all the different things that we wanted to achieve and accomplish during that five months were achieved. Major equipment deliveries are now complete with all equipment currently on site. A number of us went to have a visit a week or so ago to see the new shiploader now in place and we were thrilled to see it arriving on the special ship called Jumbo on October 8th as it sailed into Vancouver's Lions Gate Bridge and you see a picture here and I tell you it was a beautiful sight. The Neptune upgrade will of course secure for us a long-term, low-cost and reliable supply chain We made solid progress during the quarter at our TB2 project on slide 7. CB2 is a key component, of course, of Tech's Copper Growth Strategy. It's a big part of us rebalancing the portfolio, and copper will ultimately be our largest business. We currently have over 7,000 people on site and are targeting over 9,000 people on site by the end of the year. All major contractors have remobilized, and work is progressing well across the project, and it is in line with our ramp-up plan. Construction of additional camp space is being built to manage the COVID-19 impacts will provide additional capacity as it begins to come online in Q4 of 2020 this quarter. We are aiming to achieve overall project progress of approximately 40% by year end. As a result of COVID-19, we expensed $107 million of costs related to the project's extension of construction, and $23 million of interest that would have otherwise been capitalized for the project in the third quarter. And to the end of September, we've expensed total costs of $272 million and $103 million of interest that would have been capitalized for the project. We recommenced capitalization of borrowing costs on the 2D2 project in the third quarter, consistent with the return to active construction on the project. Assuming the ramp-up proceeds through the fourth quarter as currently planned, the aggregate estimated impact from the suspension is expected to be approximately $350 to $400 million U.S., excluding interest, with a scheduled delay of approximately five to six months. As well, the additional camp space has an incremental cost of $45 million U.S. above that. First production at QB2 is expected in the second half for 2022. Turning to slide eight, at Tech, our approach to safety and sustainability are core to the success of our business. Robust COVID-19 protocols remain in place at all of our operations. We continue to focus on preventative measures and controls and compliance and integration into our new normal. Year to date, our high potential incident frequency is 31% lower in the same period of 2019 that 1.1 per million hours worked. In September, together with the AES Corporation, we entered into a long-term power purchase agreement to provide 100% renewable power for our Carmen de Andacoy operation in Chile. This agreement is expected to eliminate approximately 200,000 tons of greenhouse gas emissions each and every year. And it is our goal to be The leading diversified mining company when it comes to sustainability and ESG rankings and performance. I'm proud to say our efforts on sustainability have been recognized by a number of organizations. In 2019, Tech was named to the Dow Jones Sustainability World Index for the 10th consecutive year and we were the top ranked mining company in the index. We are also the top ranked diversified metals mining company on Sustainalytics. and are highly ranked on MSCI in comparison to our peers. We are an ICMM member company. I just finished three years as chair and we have been recognized as a strong performer by ISS, FTSE for Good and others. We were proud to announce yesterday that Tech has been named to the Forbes World's Best Employers 2020 list, which is an employee-driven ranking of multinational and large companies from 45 different countries They looked at topics including COVID-19 response and willingness to recommend an employer to friends or family. Now, while we are, of course, we are proud of our performance, but we do know that there is more work to be done on these two issues as they become much more pertinent to many stakeholders. I'll now run through highlights of our third quarter by business units, starting with steelmaking coal on slide nine. The third quarter steelmaking coal sales were 5.1 million tons, which was within our guidance range. We had planned mining and production outages at our operations in the third quarter to correspond with anticipated reduced demand related to COVID-19. We reduced the logistics capacity in accordance with that using the planned five-month shutdown at Neptune Terminal, and that was completed in September. And as a result, our Q3 production of 5.1 million tons was 22% lower than the same period last year. And that affects costs, as you would expect. Our adjusted site cost of sales at $67 per ton reflected that lower production and lower sales volume. Transport costs were higher than the same period a year ago, primarily due to the lower volumes through Neptune during the planned five-month shutdown of terminal operations. And on August 25th, we announced that we signed an agreement of principle with West Shore Terminals for the shipment of 32.25 million tons starting on April 1st of 2021. Together with the Neptune upgrade and our contract with Ridley Terminals, this will provide much greater flexibility and optionality for tech shipments and contribute to reduced costs and improve performance and reliability throughout our steelmaking coal supply chain. So looking forward, we expect strong sales of 5.8 to 6.2 million tons in Q4 of 2020, up from the 5.1 in Q3. We expect our adjusted site crash cost of sales to decrease over the remainder of the year and to be below $60 per ton in December, supported by the restructuring of the cost base in our steelmaking coal business unit. Turning to our copper business unit, our third quarter results are summarized on slide 10. Antamina performed well at full production rates in the quarter, following a temporary suspension of operations due to COVID-19 that happened in T2 of 2020. Production was lower than the same period last year at both Highland Valley and Carmen del Nicoyo. At Highland Valley, production was impacted by harder-than-expected order, following a change in mine sequencing earlier in the year in support of reduced waste movement as well as maintenance challenges. Production is expected to be higher in Q4 due to increased mill throughput and higher ore grades. Decrease in decoyal was primarily the result of lower ore grades which were expected in the mine plan and also reduced mill throughput due to longer than anticipated mill bin shutdown. Notwithstanding the reduced production where you would expect cost to go higher, we actually had significantly lower total and net cash unit costs in the same period last year and this was supported by a cost reduction program and the contribution from Raise 21. Looking forward, we lowered our copper production guidance range for the second half of 2020 to 140-155,000 tons, which is down 5,000 tons from before, and that's due to the lower production in Highland Valley. I think business unit results for the third quarter are summarized on slide 11. As a reminder, and Tamina's zinc-related financial results are reported in our Copper Business Unit. Red Dog's sales of zinc and concentrate were 175,300 tons, which was in line with our guidance range. Red Dog's zinc production was significantly improved from Q2 2020. Climate change, I have to say, is affecting site conditions, which limited our ability to discharge treated water. However, operating restrictions due to excess water were resolved in the third quarter and we completed a raise of the tailings facility earlier than originally planned which provided us with additional flexibility for water storage. We also installed a new water treatment plant to increase the water discharge capacity when permit limitations allowed. At Trail, refined zinc lead production was higher than the Q3 of 2019 and looking forward We continue to expect to ship all concentrate during the Red Dog shipping season. In fact, it will complete in just a matter of days. And the repair to the loading arm on one of the two shipping barges was completed by the end of July. We expect sales of Red Dog zinc and concentrate of 145,000 to 155,000 tons in the fourth quarter, which reflects our normal seasonality. We have lowered our guidance for our net cash unit costs from the SECMAP of 2020 to 30 to 40 cents U.S. per pound from previously 40 to 50 cents per pound. So that's definitely headed the right direction. Our Energy Business Unit results for the third quarter are summarized on slide 12. Our realized prices and operating results were significantly impacted by both lower production and a material decline in benchmark oil prices compared with Q3 of 2019. As previously announced, the Port Hills Partners safely and efficiently reduced operations to a single train facility in the second quarter, which helped reduce negative cash flows in the third quarter in light of COVID-19 and the very low Western Canadian select prices. Production was also negatively impacted by extreme wet weather, which resulted in soft pick conditions starting in June and continuing into July. Looking forward, the Port Hills Partners decided to restart the second train and to ramp up production to around 120,000 barrels per day by the end of the year. And that was earlier than had previously been anticipated. On October 23rd, just five days ago, the government of Alberta announced that it will not issue monthly production limits for the December 2020 production month. And in December 2020, that means that operators will be able to produce above their previously issued production limits without having to purchase curtailment credits or to apply the special production allowances. The curtailment rules have been extended to December 31, 2021. However, the government of Alberta will only issue ministerial orders to limit production when they feel it is needed. If required, ministerial orders will be issued with 30 to 60 days notice to allow time for producers to respond and plan accordingly. The Four Hills Partners continue to monitor the business environment and assess plans to maximize cash flow. including the potential to increase production and lower costs. We've lowered our guidance for adjusted operating costs in the second half of the year to $35 to $38 Canadian per barrel of bitumen, down from the previous $37 to $40 per barrel. But of course what we're all looking forward to is to getting to that level that we were in in December of 2018, which was the last month when Four Hills was allow it to run at full capacity in that month that averaged 201,000 barrels a day at a cash cost of 23 Canadian per barrel. We're looking forward to getting back there sometime in the future. And with that, I'll pass it over to Ron Mills for some comments on our financial results. Ron, over to you.