Teck Resources Ltd

Ladies and gentlemen, thank you for standing by. Welcome to TECC's fourth 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 Thursday, February 24, 2022. 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, Patrick. Good morning, everyone, and thank you for joining us for TEC's fourth quarter 2021 results conference call. Please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. TEC does not assume the obligation to update any forward-looking statements. Please refer to slides two and three for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call. Explanations and reconciliations regarding these measures can be found in our MD&A and the latest press release on our website. Don Lindsey, our President and CEO, will begin today's call with full year and fourth quarter highlights. He'll be followed by Jonathan Price, our CFO, who will provide additional color on our financial results. We will conclude today's session with a Q&A period to address any remaining questions. With that, I'll turn the call over to Don.

Thank you, Fraser, and good morning, everyone. Well, 2021 was a great year for tech. We are pleased to close out the year by setting a number of financial records despite what was a very challenging backdrop. Solid operational performance and strong commodity prices drove $6.6 billion in adjusted EBITDA in 2021 and the highest ever quarterly adjusted EBITDA of $2.5 billion in Q4 2021. which was more than triple last year's level. I am incredibly proud of the tremendous resiliency demonstrated by our team all across the company who've continued to operate our assets safely and sustainably through heat waves, a heat dome, I'd never heard that term before, wildfires, incredibly heavy rains, deep freeze, freezing temperatures, record cold temperatures, and the continued impacts, of course, of the global pandemic. Unprecedented floods, brought on by three atmospheric rivers, a term I also hadn't heard, three of them in four days in the fourth quarter, tested the resiliency of our steelmaking coal supply chain in British Columbia. And despite major rail and infrastructure damage caused by what is now referred to as one of the worst natural disasters in Canadian history, there was no material impact on our production. We reached multi-year collective agreements at Antamina, QB, Fording River, and Elk View in 2021, and also at Highland Valley subsequent to your end. So we now have long-term stable agreements at our three largest mines. We continue to advance our priority projects in the fourth quarter, and overall progress at our flagship QB2 copper project has reached 77%. We are focused on delivering on the project's key milestones, including the commissioning of systems as they are completed. We continue to expect first production in the second half of this year. You know, tech is already one of the world's lowest carbon intensity producers of each of copper, zinc, and steelmaking coal, but we are taking further action to support global efforts to combat climate change. We continue to reduce the carbon footprint of our operations as we progress towards our target of net zero by 2050. And in November, we announced an agreement with Oldendorf carriers to employ energy-efficient bulk carriers, which is expected to reduce our Scope 3 emissions on a portion of our steel and coal shipments by up to 40%. The estimated savings can be up to 45,000 tons of CO2 annually, which is the equivalent to removing nearly 10,000 passenger vehicles from the road. In January, we announced our partnership with Caterpillar to deploy 30 zero-emission large haul trucks at our mining operations. And this is exciting progress because the decarbonization of our fleet represents the single largest opportunity to reduce our scope on emissions. And overall, we're very pleased to see our continued efforts in ESG are being recognized by the industry. So for the third year in a row, we are ranked number one in the metals and mining industry on S&P's corporate sustainability assessment. We're also ranked number one among North America's metals and mining companies by Moody's ESG, We're number two in diversified metals by Sustainalytics and rated AA by MSCI for our ESG performance. Turning to slide five, annual adjusted EBITDA of $6.6 billion in 2021 was a record, reflecting strong contributions from each of our copper, zinc, and steelmaking coal business units. And importantly, our record profitability enabled us to deliver meaningful cash returns to shareholders. Yesterday, the Board approved an amended dividend policy and declared a dividend and authorized the repurchase of up to $100 million of Class B subordinate voting shares in 2022. Under the new dividend policy, the annual base dividend has been increased from $0.20 a share to $0.50 a share. And in accordance with the new dividend policy or capital allocation framework, the Board declared a dividend of $0.62.5 per share, consisting of $0.12.5 of a quarterly base dividend and a supplemental dividend of $0.50 per share. In addition, the Board authorized annual share buybacks up to $100 million, and additional buybacks on top of that will be considered regularly. Taking into account the new annual base dividend in 2022 and the supplemental dividend, and assuming the $100 million in share repurchases, these initiatives represent a total of approximately $635 million in aggregate of dividends and share repurchases. Our ability to deliver a supplemental dividend in 2021 and the increased annual base dividend and the new annual share buyback demonstrate both our confidence in the outlook for our business and our commitment to balance growth and returns to shareholders. So turning to our operations on slide seven, fourth quarter EBITDA for our copper business unit increased by 64% compared to last year, supported by copper prices, which reached an all-time quarterly record. Production was in line with plan, although copper sales were impacted by heavy rains and extreme winter conditions, which affected rail service and shipment schedules. Net cash unit costs after cash margins for byproducts were $1.52 U.S. per pound. That's 25 cents higher than last year. We continue to experience inflationary cost pressures, and we also are seeing increases in our profitability-based payments at Antamina. and that's included in that 25% increase. And as I've already noted, we are pleased to have reached multi-year collective agreements in Antamina, Cladoblanca, and subsequent quarter end at Highland Valley. So looking ahead, we expect strong performance from all of our copper operations in 2022. Moving on to zinc in slide eight, our zinc business generated $290 million in EBITDA in the fourth quarter, and that's an 80% increase compared to last year. The increase was driven by higher zinc prices and partly offset by higher royalty costs related to profitability at Red Dog. Lower Red Dog zinc and concentrate production was primarily due to lower mill throughput and recoveries as a result of unplanned maintenance, which is now behind us. Refined zinc production at our trail operations was 11,800 tons lower than a year ago due to issues we encountered in the commissioning of new equipment as well as unplanned maintenance. Looking ahead, Trails 2022 production will be impacted by major maintenance activities from September to November, when the Kivset furnace hearth and the dome in one of the zinc roasters will be replaced after 25 years of operation. And our Red Dog royalty will increase to 40% in October from 35% currently, based on our operating agreement with NANA, which outlines a 5% increase every fifth year to a maximum of 50%. In 2022, we expect a significant increase in zinc production at Red Dog and a decline in total cash unit costs before byproduct credits, despite ongoing cost inflation pressures. Turning to slide 9, our steelmaking coal business unit had a record fourth quarter, generating $1.7 billion in EBITDA in the quarter, and that compares with $118 million last year. Realized prices averaged $351 U.S. a tonne, which was $244 higher compared to a year ago. And to capitalize on this premium pricing, we maximized available processing capacity to meet additional sales opportunities to China in the fourth quarter. Thanks to our Neptune facility, which had ramped up and was exceeding design capacity during the quarter, we entered the first half of November with historically low levels of clean coal inventory at the mine sites. This allowed us to continue operations with minimal production impacts despite the logistics disruptions that occurred in the latter half of the fourth quarter. Sales in the quarter were 5.1 million tons, which was slightly below our revised guidance. We sold 1.8 million tons of steelmaking coal to customers in China in the quarter. That was pretty similar to the three previous quarters. And annual sales to customers in China totaled 7.6 million tons, or approximately 30%. of our annual sales volumes. Sales to our customers in China are, of course, at CFR China prices, which reached a record high of more than $610 US during October. And although the steelmaking coal price in China decreased quite a bit during the fourth quarter, the average CFR China price for the quarter exceeded FOB Australia price assessments. The remainder of our sales were sold based on the FOB Australia price, which also averaged at a record level through the fourth quarter. And fourth quarter adjusted site cash cost of sales of $72 per ton were higher due to inflationary pressures, including higher diesel prices, profit-based compensation, and our investment in Race 21. Our annual adjusted site cash cost of $65 per ton was within our previously disclosed guidance range of $64 to $66. Fourth quarter transportation costs of $49 per ton reflect the extraordinary vessel demurrage in the quarter as a result of port service disruptions and higher rail fuel surcharges. And the higher costs were partially offset by lower port costs as higher volume of sales went through Neptune. And as a result of prolonged supply chain disruptions, we entered 2022 with very high mine site steel making coal inventories. With CN and CP rail making progress toward fully restoring rail service to our coal terminals, we expect to be able to largely recover delayed fourth quarter sales within the first half of 2022. Assuming full recovery of the rail network, we expect sales to be between 6.1 and 6.5 million tons per Q1. We expect 2022 steel making coal production between 24.5 and 25.5 million tons. Our 2022 production estimate is reflective of potential production curtailments in the first quarter due to high inventory levels. So we see that risk starting to decline now, and it made some good progress recently. Further, while the recent surge in Omicron cases has not had a major impact on productivity to date, continued absenteeism has the potential to have a negative impact on our operations. So despite unprecedented logistics challenges and continued inflationary pressures, our steelmaking coal business unit delivered record financial results in 2021 and is well positioned to deliver very strong financial performance again in 2022. And I note that Australia FOB prices are up again today and they are currently over $450 per tonne, back closer to $459 per tonne, up about $18 in the last three days. Turning to our energy business unit on slide 10. Our results improved from the fourth quarter 2020, largely due to the 88% increase in the Western Canadian Select oil price, which resulted in a positive operating netback. In the fourth quarter, the focus was on ramp up to full rates. We were pleased to see Fort Hills safely and successfully resume to a two-train operation in December. The facility is expected to operate at an average utilization rate of 90% throughout 2022. The midpoint of our guidance, represents an increase of approximately 85% compared to 2021 for our share of the annual production. And with higher production and productivity, adjusted operating costs are expected to come down by approximately 40% to between $26 and $30 per barrel in 2022. Underpinned by strong global energy prices, we expect to see a meaningful improvement in Fort Hills EBITDA in the first half of 2022. I note that WTI is $97.33 as we speak, and with differentials fairly stable, that means that we have a Western Canadian select price in the mid-80s U.S. or well over $100 Canadian. Moving on to slide 11, as I mentioned earlier, we continue to advance construction at QB2 with overall progress now having reached 77%. We were very proud of Q4, by the way, because we achieved 11% completion in that quarter, and 35% for the whole year. We are proud of this achievement, especially in light of the challenges that we have faced around COVID-19. The number of cases in Chile rose very rapidly in January and early February, so we weren't able to continue the rate of progress that we were making in Q4 during that time. We are continuing to aggressively mitigate the impact of the pandemic on QB2, and we believe that we're past the peak there, and it has improved quite significantly from the worst of it. Construction continues to progress, and we remain focused on delivering key systems as we position for first copper later this year. We have completed more than 90% of the water supply pipeline welding, and the tailing starter dam is more than 85% constructed. We've also energized the port area substations, and we are continuing with our preoperational testing of the desalination plants. Our operations and commissioning teams are working in close collaboration with the construction teams and our busy commissioning systems as they are completed and handed over. And this includes commissioning the port substations, the mine electrical loop, and the first two electric shovels. We've also completed commissioning and testing of the autonomous haul truck system, and these trucks are now doing productive work in the mine area, and I was able to visit and see them in action in December. A number of us will be going again next month. Turning to slide 12, it shows the testing and commissioning of the electrical systems associated with the mine electrical loop. Energization of the mine loop was an important step in completing commissioning of our mining fleet. With the mine loop energized, you can see the two new electric shovels that we've commissioned on slide 13, and these shovels will be used for pre-stripping mining activities. Slide 14 is a view of the 15-story high ore stacker structure, which transfers ore from the crusher to the ore stockpile. And you can also see the commencement of the erection of the ore stockpile dome in the center of the photo. Slide 15 is showing the grinding building where we have all the mills in place. We're working on the mechanical and electrical systems, and we've commenced installation of the sidings. The next slide, slide 16, shows one of the 85-meter diameter tailings thickeners where we are completing the installation of the internal mechanical components now. And from here, slide 17, we go to the starter dam at the tailings management facility where we continue to make excellent progress and are now over 85% constructed. The tech mine fleet has done a great job in providing materials for construction. And on the right of the photo, you can see the pond liner which is in place in preparation for receiving water. Work on the main jetty is progressing well. It will support both the ship loader and the seawater intake system, and the sub-sea work, including the 440-meter-long brine outfall pipe and the first to two water intake pipe systems, are now in place in preparation for seawater extraction. As we head back onshore, you can see we've energized the four substations there on slide 19. and this energization is an important step towards commissioning of the infrastructure at the port area. And finally, slide 20 shows the roof structure in place for the 75,000 ton capacity concentrate storage building at the port. So in summary, we continue to be very pleased with the progress that we are making and we are excited about building on our construction successes to date with a focus on delivering to the project's key milestones. I'd encourage you to visit the investor section of our website to watch a video of the project and view our latest quarterly photo gallery. So with that, I will now pass it over to Jonathan to discuss our financial results.