Teck Resources Ltd

Ladies and gentlemen, thank you for standing by. Welcome to Tech's third 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, October 27, 2021. 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, Laurie. Good morning, everyone, and thank you for joining us for Tech's third quarter 2021 results conference call. Before we begin, I would like to draw your attention to slide two. This call 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 Lindsay, our President and CEO.

Thanks very much, Fraser, and good morning, everyone. I will begin with third quarter highlights on slide three, followed by Jonathan Price, our CFO, who will provide additional colour on our financial results. Then we'll conclude today's session with a Q&A or Jonathan and additional members of our senior management team will join me in answering your questions. So I'm pleased to report that our solid operational performance combined with an extremely favorable commodity price environment in third quarter resulted in a record adjusted EBITDA and record adjusted profit. Third quarter adjusted EBITDA $2.1 billion is more than triple the same period last year. and note this, September alone contributed to approximately half of the total as strong realized pricing continued across all of our principal products, particularly steel making coal, but also copper, zinc and energy. And if you look at the pricing we've experienced in October, it's higher than it was in September right across the board. So it'd be a pretty good indication how we did in the month of October. Despite the continued impact of COVID-19, as well as the impact of forest fires in British Columbia in July, Q3 production was in line with plan across our business units and our annual production guidance remains unchanged. However, as we previously mentioned, we are seeing inflationary cost pressures, notably in the price of diesel, supplies and labour costs and not unlike our peers, these cost increases impacted third quarter operating results across our businesses and we are expecting upward pressure on our cash unit costs through the balance of the year and into 2022. Despite this, we have not changed our full year cash unit cost guidance as we anticipate higher utilization and efficiency gains to partially offset some of the current pressures. Looking ahead, we are well positioned to capture the significant cash flow generation opportunities arising from current steelmaking coal prices in Q4 and into 2022. During the third quarter, we continue to advance our priority projects. Overall progress on our flagship QB2 copper growth project has surpassed the two-thirds mark as our team continues to aggressively manage the conditions resulting from COVID-19. Vaccination rates among the project workforce are high, and more recently, we have been able to ramp up staffing levels with a focus on delivering on the project's key milestones. We continue to expect first production at QB2 in the second half of next year and QB2 is expected to double our consolidated copper production by 2023. We are though experiencing some upward cost pressures and we expect to issue updated capital cost guidance on the project in February with our Q4 results and I'll come back to this in a moment. To see more of the latest progress on QB2, I encourage you to watch a video of the project and view our latest quarterly photo gallery, which is in the investor section of our website. And as a reminder, we are hosting a virtual site visit of QB2 on November 1st. So please mark the date in your calendar and we hope you will join us. Our Neptune facility continued its ramp up during the third quarter, successfully demonstrating the ability to perform at design capacity. And just a couple of the days ago, it actually loaded 91,000 tons, a new all-time record. but don't get out your calculators you can't annualize that number but suffice it to say is it's going very well. The facility is expected to achieve a run rate at its design capacity of 18.5 million tons or higher in the fourth quarter. Our steel making coal supply chain transformation is contributing significantly improved optionality and reliability and with record high prices for steel making coal it is an excellent time to be in charge of your own destiny. Last week, we announced the conversion of our US $4 billion community credit facility into a sustainability-linked credit facility to support our sustainability goals. And to that end, we're also very proud to see our efforts recognized with an upgrade in our ESG rating from MSCI to AA, from single A, which puts tech in the top decile of our sector and ahead of most of our diversified competitors. We were also named to the Forbes World's Best Employers list for the second year in a row. And heading into the fourth quarter, we are focused on continuing to optimize sales and production to capitalize on high commodity prices and advancing our priority QB2 copper project. Turning to an overview of our third quarter 2021 financial results on slide four, our revenues improved significantly from a year ago. Driven by increases in the prices of all of our principal products, particularly steel, make and coal. Adjusted EBITDA, as I mentioned earlier, more than tripled from the same period last year. Profit attributable to shareholders was $816 million, or $1.53 per share. And adjusted profit attributable to shareholders was $1 billion, or $1.91 per share, which is more than seven times higher than the same period last year. Slide 5 provides a snapshot of third quarter performance across our business units compared to last year. Notwithstanding the effects of wildfires on our operations in BC and some minor unplanned maintenance at Red Dog, solid operational performance and high realized prices drove meaningful gross profit increases across the board in each of our business units. And Jonathan will review our financial results in more detail in just a few minutes. Turning to copper on slide 6. EBITDA for our copper business unit increased by 95% compared to the same period last year, driven primarily by the 43% increase in our realized price of $4.28 U.S. per pound. Production was in line with plan despite the temporary suspension of our Haunted Valley operations in mid-August due to wildfires. Net cash unit costs reflect higher cash margins for bioproducts due to substantially higher zinc prices. We have maintained our annual production and operating cost guidance in copper, despite upward pressure on cash unit costs, primarily due to higher consumable costs, a stronger Canadian dollar, and profit-based payments at Antonina. Moving on to slide seven. As I mentioned earlier, we continue to advance construction at QB2, with overall progress now past the two-thirds mark. We have maintained our extensive COVID-19 protocols in order to protect the health and safety of our workers and our communities. Working closely with the Chilean government, we successfully rolled out a vaccination campaign. The proportion of workers who have been fully vaccinated now exceeds 88%, and in fact, 93% of workers have been administered at least one dose of the vaccine. So that's good. Prescreening and on-site testing have been key to our success in managing case rates at site while effectively advancing construction. but it's not over. As COVID-19 cases in Chile declined in the third quarter, we've continued to ramp up towards peak workforce levels to maximize camp occupancy where we are now able to house three employees to a room. Chile has cited our efforts as a model for managing workplace health and safety during these unprecedented times and Bechtel indicates that QB2 is one of their best performing projects worldwide for managing the spread of the virus. Now, we are reviewing our capital cost guidance and an updated cost estimate will be provided with our Q4 2021 results in February. We are now, though, seeing some COVID-19 related pressures on contingency and on our capital estimate of $5.6 billion that we published on April 1, 2020. We are continuing to review and manage these costs and expect an increase to our capital estimate of up to 5% could be required for additional contingency. COVID-19 related capital costs are also seeing ongoing cost pressures as a result of continued absenteeism and labor inefficiencies. We are managing these costs and have put in place a variety of mitigation measures to counter the many adverse effects associated with construction in this environment, many of which are aimed at attracting talent, employee retention, and minimizing absenteeism. The final extent of COVID-19 related impacts on the project schedule and budget will depend on our ability to establish and maintain adequate workforce levels and productivity. Looking ahead, we remain focused on delivering to key project milestones and positioning for successful startup. We continue to expect first production in the second half of 2022. The critical path is the grinding circuit, which remains on track. And in addition, Our teams remain focused on the important port to pond infrastructure which will provide water for the concentrator. The photo on the right shows the truck shop which is one of the early components being commissioned along with the mine electrical loop to support pre-stripping activities. Other systems such as the power substations are also nearing completion to support overall commissioning activities. Our operations and commission teams are working in close collaboration with our construction and corporate groups to ensure a successful startup and to drive value through linking people, process, and workplace design. Our priority is to ensure a seamless transition to operations with our leadership team already in place as we ramp up the operations workforce. Slide 8 shows our progress in the port onshore area, including the concentrate storage building, the filter plant and water pump station in the background, and the desalination plant in the foreground. Slide 9 provides an overall view of the steel work for the grinding building in the background and the pebble crusher in the foreground. And the grinding lines currently remain the critical or longest path for the project and we continue to make significant progress here. Slide 10 shows the upstream side of the starter dam at the tailings management facility where we have raised the dam elevation significantly in the quarter and we continue to utilize the tech mine fleet and some of our new fleet of CAT 794s and they are performing very well. We continue to be pleased with the progress we're making and are excited about building on our construction successes to date with a focus on delivering to the project's key milestones. We look forward to sharing more of our progress with you at our QB2 virtual site tour on November 1st. Next, we've summarized our zinc business unit results for the third quarter on slide 11. And as a reminder, Antamina's zinc-related financial results are reported in our copper business unit. EBITDA generated from our zinc business increased by 24% compared to last year, primarily due to higher prices, partly offset by higher royalty costs related to increased Red Dog profitability. At Red Dog, zinc and concentrate sales of 162,000 tons was above our guidance range, despite a late start to the shipping season due to weather and ice conditions and a record weather-related shipping delays in July and August. Lower Red Dog zinc and concentrate production was primarily due to lower mill throughput and recoveries as a result of some unplanned maintenance, which is now behind us. As previously announced, refined zinc production at our trail operation reflects a temporary four-day shutdown of the oxygen plant due to wildfires in August. And looking forward, we expect to ship all zinc concentrates from Red Dog during the current shipping season