Teck Resources Ltd

Ladies and gentlemen, thank you for standing by. Welcome to Tech's first quarter 2021 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 Wednesday, April 28, 2021. I would now like to turn the meeting over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks very much, Kate, and good morning, everyone. Thank you for joining us for Tech's first quarter 2021 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, and 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 the 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.

Thanks very much, Fraser, and good morning, everyone. I'll begin on slide three with first quarter highlights. I'll be followed by Jonathan Price, our CFO, who will provide additional color on our financial results. And then we'll conclude with a Q&A session where Jonathan and I and several additional members of our senior management team would be happy to answer any questions. So strong operational performance and higher commodity prices contributed to a very solid start to 2021 in the first quarter. Our operations continue to be resilient despite ongoing challenges associated with COVID-19. The tech team continues to rise to meet those challenges, putting in place comprehensive measures to protect the health and safety of our people and our communities to ensure that we can continue to operate responsibly and progress our strategy to grow copper production. Across our businesses, production was in line with plan. We met our quarterly sales guidance in both steelmaking coal and zinc, and there are no changes to our annual guidance. At the same time, we achieved major milestones for our priority projects. We are now past the halfway point of construction at our QB2 project, which is a long-life, low-cost operation with major expansion potential. QB2 is expected to double our consolidated copper production by 2023, and we continue to expect first production in the second half of 2022, which is next year. Our Neptune port upgrade project has moved into commissioning phase. We've now loaded 18 ships. And we successfully commissioned the Elk View saturated Rockville expansion in the first quarter on schedule and below budget. The Elk View SRF has been achieving near complete removal of selenium and nitrate from up to 10 million liters of water per day since 2018. It is part of our ongoing work to implement the Elk Valley Water Quality Plan to maintain the health of the watershed around our steelmaking coal operations. The Elk View SRF expansion doubles the water treatment facility's capacity to 20 million liters of water per day. Turning to slide four, revenues were up 7% from a year ago to $2.5 billion, and profitability improved even more. with adjusted EBITDA increasing almost 60% to $967 million, and bottom-line adjusted profit attributable to shareholders increasing almost 250% to $326 million, which is $0.61 per share on a diluted basis. This reflects higher prices for our principal products, most significantly copper, zinc, and Western Canadian Select. Jonathan will review our financial results in more detail in just a few minutes. I will now run through highlights of our first quarter by business unit, starting with copper on slide five. Our copper business unit had a strong Q1, with a 205% increase in EBITDA compared to the same period last year, reflecting substantially higher copper prices. Production was similar to a year ago, with higher production at Highland Valley Copper and Antamina, offset by lower production at Karmadanda Koyo and QB, as expected in our mine plans through 2021. Net cash unit costs were $1.38 US per pound in the quarter, up from $1.28 per pound a year ago, but in line with guidance, the increase in cost is primarily due to higher workers' participation and royalty expense resulting from higher profitability in Antamina, as well as lower production volumes at Carmen de Andocoyo. Turning to an update on our QV2 project on slide six, overall project progress surpassed the halfway point in April. We have been seeing the pace of construction trending upwards through the first quarter. In fact, we have been hitting new weekly records over the last month. These successes are a reflection of the project team's efforts in effectively managing through the current wave of COVID-19 in Chile. We continue to enhance our extensive COVID protocols in order to protect the health and safety of our workers and the communities in which we operate, including pre-screening of the entire workforce with PCR testing. The situation is being actively managed to maintain the current workforce level and to allow for further ramp-up as soon as it's practical. As I mentioned earlier, we are still on track for first production in the second half of next year. Our capital cost estimate remains at $5.2 billion U.S., absent the COVID-19-related capital expenses, which are being tracked separately. We have previously disclosed $450 to $500 million U.S. of COVID-19-related costs of which 197 million US have been expensed. COVID-19 does continue to affect project progress. That said, we are pleased with the progress we are making in light of the current COVID-19 restrictions, but the final extent of COVID-19 related costs will depend on the progress of the pandemic in Chile and the extent of further impacts on staffing levels. Slide seven provides an aerial view of the concentrator area. The grinding lines shown in the middle remain the critical or longest path for the project. We have made significant progress on the grinding lines and five of the six mills are now in place. Since the start of the year, we have advanced the placement of the third and fourth ball mills. And here you can see the last shell segment being lowered in place for the fourth ball mill. We've also significantly advanced the structural steel of the grinding building and have installed the staged flotation reactor or SFR cells in the flotation area, which you can see just here in green on the far right of the photo. These are just adjacent to the large blue rougher flotation tanks, which are well advanced in terms of mechanical installation. Slide 8 shows our marine works, where piling for the jetty is advancing from shore. You see that in the foreground, as well as from a temporary island in the background, supporting two additional work fronts offshore. Slide 9 shows the starter dam of the tailings management facility. We have significantly advanced construction in this area, completing the abutments seen in the background and continuing to raise the elevation of the dam in the foreground. And for these works, we have been using TEC's current mine fleet, which includes several new CAT 794 haul trucks that were recently commissioned. TEC mine fleet is performing very well and it has provided significant benefit to the project. Slide 10. The pipeline right-of-way and platform development is now essentially complete, and we continue with trenching, pipe stringing, welding, and placement of the pipelines. Slide 10 shows a section of the water pipeline being lowered into place. This is the pipeline that will bring desalinated water from the port up to the site. To see more of the latest progress at QB2, I encourage you to take a look at a video of the project in our quarterly photo gallery. We have posted these with our quarterly conference call materials at tech.com. And there are links to them also in our Q1 2021 press release. Next, our zinc business unit results for the first quarter are summarized on slide 11. As a reminder, Antamina's zinc-related financial results are reported in our copper business unit. Substantially higher zinc prices were more than offset by a stronger Canadian dollar, lower sales volumes, and higher unit operating costs and royalty expense. As we had flagged last quarter, lower 2020 production volumes at Red Dog have resulted in lower material available for sale and higher unit cash costs of sales in the first half of this year. Red Dog sales of zinc concentrate, zinc in concentrate, were 104,000 tons, which was above our guidance range of 90 to 100,000 tons. Looking forward to Q2, We expect Red Dog zinc sales to be 35,000 to 45,000 tons, which is again lower than normal as a result of the reduced production in 2020. And at Trail, while we continue to expect to produce between 300,000 to 310,000 tons of refined zinc this year, Q2 production will be impacted by planned annual zinc roaster maintenance. Turning to our steelmaking coal business on slide 12. Sales were 6.2 million tons, in line with our quarterly guidance. Our second quarter average realized price reflects around 2 million tons of sales to Chinese customers at high CFR China prices. Our adjusted site cash cost of sales were $63 per ton in the quarter, and this was higher than anticipated due to intermittent processing challenges, which are largely behind us, and mining sequence adjustments, which advanced higher cost steelmaking coal production from later in the year into Q1. Despite these challenges, unit costs were within our annual guidance range, and all operations currently have healthy, raw steel-making coal inventories. We are now well-positioned to maximize production out of the operations and deliver strong cash flows going forward. Also in Q1, we resolved the charges under the Fisheries Act in connection with discharges of selenium and calcite in 2012 from our Fording River and Green Hills operations. And as I mentioned earlier, we have successfully commissioned the LPSRF on schedule and below budget. Looking forward to Q2, we expect sales of 6 to 6.4 million tons, and we will continue to prioritize available spot sales volumes to China, which is expected to continue to result in favorable price realizations. We expect our realized price in Q2 to be materially higher than the 10-year average of 92% of the benchmark, which was coming from the average of the three assessments slagged by one month. And as I indicated earlier, our Neptune port upgrade project has now moved into the commissioning phase. The first steelmaking coal was unloaded using the double rail card dumper pictured on slide 13 on April 19th. I visited the site the day before yesterday, saw it all in action. It looks terrific. Ramp-up is proceeding as planned, and all major equipment is performing according to or better than planned. To date, 18 vessels have already been loaded using the new outbound system. And at the same time, the upstream rail infrastructure improvements by both CP Rail and CN Rail to support our increased volumes through Neptune, they are all largely complete. So we're very, very pleased with the status of Neptune. As I said, the first steelmaking coal went through the new double rail dumper on April 19th. And you can see the photo on slide 14 shows it being placed on our stockpile by the new stacker reclaimer. If you'd like to see the new double dumper in action, we have posted a short video with our quarterly conference call materials at tech.com, and there is a link to it in our quarterly press release. Slide 15 shows our new ship loader loading steelmaking coal into a vessel. We are really pleased to see the project move into the commissioning phase and achieve first steelmaking coal, as Neptune is a key component of our long-term, low-cost, and reliable supply chain for our steelmaking coal business. Turning to our energy business unit results for the first quarter, which are summarized on slide 16. Our realized price and results reflect a material improvement in benchmark oil prices in Western Canadian Select compared with Q1 2020. However, this was partially offset by higher unit operating costs due to lower production. Bitumen production in the first quarter was impacted by low available mine inventory levels at the end of 2020. So looking forward though, Suncor expects to ramp up to two-train production by mid-year and to sustained production of 175,000 to 185,000 barrels per day by the fourth quarter. The focus is on overburden stripping and building monumentary levels to allow ramp-up to a two-train production. And with that, I'll pass it over to Jonathan for some comments on our financial results, and I could please ask everyone to keep their phone on mute while the presentation is ongoing. Thank you. Jonathan.