Teck Resources Ltd

Welcome to Tech's first quarter 2022 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 27, 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. Thank you for joining us for TEC's first quarter 2022 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 slide two for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call. Exclamations and reconciliations regarding these measures can be found in our MD&A and the latest press release on our website. Don Lindsay, our present CEO, will begin today's call with first quarter highlights, followed by Jonathan Price, our CFO, who will provide additional color on our financial results. We will conclude today's session with a question and answer period to address any remaining questions. With that, I will turn the call over to Don.

Thank you, Fraser, and good morning, everyone. We are pleased to report an exceptional start to the year and our record-setting financial results in the first quarter and what is going to be a transformational year for all of us here at Tech. Solid operational performance and continued strong commodity prices drove a quarterly record of $3 billion in adjusted EBITDA, which is more than triple the same period last year. We delivered adjusted diluted earnings of $2.96 per share compared to $0.61 in Q1 of 2021. And importantly, our strong financial performance enabled us to both strengthen our balance sheet and return significant cash to shareholders. We continue to advance our flagship QB2 copper project, with overall progress now surpassing 82% completion. We have to say we're very proud of this achievement, especially in light of the significant impact the Omicron wave had on workforce absenteeism, which exceeded 20% early in the quarter. Our QB2 capital cost guidance remains unchanged and our teams are focused on systems completion and handover as we expect first copper from line one in Q4 of this year, assuming no further COVID waves or other major disruptions. During the quarter, we made meaningful progress towards our commitment to safety and sustainability leadership. On safety, our high potential injury frequency remained low at 0.14 in the quarter. On climate, As you will have seen, we expanded our climate action strategy, building on our existing commitment to net zero across our operations by 2050. We included a new short-term goal to achieve net zero scope two GHG emissions by 2025. And we also have an ambition to achieve net zero scope three emissions by 2050. We are pleased to see our continued sustainability efforts being recognized by the industry. During the quarter, we were named to the 2022 Bloomberg Gender Equality Index in recognition of a high level of disclosure and performance in gender equality. And Highland Valley was the first Canadian mine site to be awarded the copper mark verification for its responsible mining practices. Turning to slide four, as stated earlier, we delivered $3 billion in adjusted EBITDA in the quarter, notwithstanding global inflationary pressures, which increased our overall operating costs by 13% compared to last year, our results reflect meaningful contributions from each one of our business units. Solid operational performance combined with the strong commodity price environment enabled us to further strengthen our balance sheet and accelerated our ability to return capital to shareholders. In the first quarter of 2022, we redeemed $150 million US of our maturing notes, and we also paid $337 million Canadian in dividends to shareholders. And subsequent to quarter end, we completed $100 million of buybacks. Just last night, we announced our intention to repurchase further 500 million U.S. and Class B supported voting shares. We think this demonstrates both our confidence in the outlook for our business and our commitment to balance growth with shareholder returns. Going forward, we will consider additional buybacks in the context of market conditions at the time. And with the startup of QB2, we are quickly approaching an inflection point where the potential for further increased cash returns to shareholders will be then there possible. Turning to our operations, starting with our copper business unit on slide six, record quarterly copper prices of $4.53 per pound and higher contributions for byproducts drove EBITDA of $523 million in the first quarter, which is an increase of 25% from last year. At Highland Valley, production was impacted by unplanned maintenance that reduced mill throughput. However, copper sales exceeded production as the logistics change recovered from the weather-related disruptions at the end of 2021 and inventory was drawn down. Overall, unit operating costs were in line with our annual guidance. The increase year-over-year was primarily the result of higher diesel prices and profit-based compensation. In April, Antamina submitted an application for an amendment to its currently approved Environment Impact Study to extend the mine life from 2028 to 2036. And looking ahead, we continue to expect strong performance from all of our copper operations in 2022. Our annual guidance is unchanged. However, there continues to be upward pressure on cash unit costs. Moving on to zinc on slide 7. EBITDA on our zinc business increased by 71% compared to Q1 last year to $298 million. The increase was driven by higher concentrate sales volumes and zinc prices, which were up 32%, partly offset by substantially higher royalty costs related to profitability at Red Dot. The higher zinc and concentrate sales volumes in Q1 were primarily a result of the late start of the 2021 shipping season and the historic weather-related delays resulting in the deferral of a portion of 2021 sales into Q1 2022. Unit costs are down as a result of lower smelting processing charges, which more than offset inflationary pressures. At Trail, refined zinc production was impacted by non-recurring operational challenges, which are now behind us. Looking ahead, we expect Red Dog zinc and concentrate sales of 50,000 to 70,000 tons in the second quarter, which reflects normal seasonality, and our annual guidance is unchanged. On slide 8, our steelmaking coal business unit delivered yet another record quarter, generating $2.1 billion in EBITDA, a five-fold increase compared to $415 million last year. Pricing for steelmaking coal increased significantly through the quarter, resulting in record quarterly realized price of $357 U.S. per ton. Sales to our customers in China are based on the CFR China price, which was at a discount to FOB Australia during this quarter. Sales in the quarter were 6 million tons, exceeding production but slightly below guidance, and that was as a result of the CP Rail work stoppage in late March. Production was impacted by processing challenges and curtailments early in the quarter associated with high mine inventories, which were carried over from the various weather disruptions in late 2021. Our rail infrastructure and complementary port capacity upgrade at our Neptune terminal demonstrated its value by mitigating the impact of major weather events. The rapid recovery of the logistics chain and the ability to recover deferred sales allowed us to capture higher margins in sales in a high-price environment. Adjusted site cash costs of $77 per ton and transportation costs of $46 per ton in the quarter reflect continued inflationary cost pressures, including substantially higher diesel prices, profit-based compensation, demurrage costs, and fuel surcharges. These increases were partially offset by lower port costs at Neptune. Looking forward, we expect sales of 6.3 to 6.7 million tons in the second quarter. Given our lower production at Q1, we expect 2022 production to be in the lower half of our guidance range of 24.5 to 25.5 million tons. As a result of the same factors that impacted our first quarter costs, we now expect 2022 adjusted site cash costs between $79 and $83 Canadian per ton. Additionally, we increased our capitalized tripping cost guidance by $50 million, which reflects the inflationary mining cost pressures in 2022. And it's important to note that the primary cost increases are not related to key mining drivers such as mine productivity and strip ratio, which remain relatively stable. Notwithstanding recent volatility in steelmaking coal prices, the FOB and CFR benchmarks are currently trading at significantly higher levels compared to our record average realized price in the first quarter, which points to continued strong results in Q2. Turning to slide nine. Our energy business delivered $119 million of EBITDA in the first quarter, driven by the significant increase in the price of Western Canadian Select and Fort Hills ramp up to a two-train operation. In addition to its positive contribution to our bottom line, our investment in Fort Hills provides us a natural hedge against increasing WTI and diesel prices. Lower adjusted operating costs per barrel reflect higher production, which is partially offset by higher costs for natural gas and diesel. The increase in the WTI price also impacted costs for diluent, which is required for blending with the bitumen. And looking forward, a 20 day planned maintenance outage in the second quarter is expected to reduce production to one train during this period. But we continue to expect Port Hills to operate at an average utilization of 90% in 2022. As we have previously stated, adjusted operating costs are expected to continue to decrease throughout the year. However, given increases in the price of natural gas and diesel, we now expect adjusted operating costs for 2022 to be in the range of $28 to $32 Canadian per barrel. And moving on to QB2 on slide 10. We now have 12,500 workers on site, which is the highest to date. evidencing the recovery from the impacts of Omicron virus early in the quarter when absenteeism exceeded 20% of times with hundreds of workers in isolation. Despite these challenges, steady progress has been made since our last report just two months ago, and QB2 is now over 82% complete, and we expect first copper from line one in Q4 this year, while our capital cost guidance remains unchanged. We're proud of this progress, We are also pleased to report that the QB2 project has been named by Bechtel as their global construction project of the year. We completed a number of key milestones in Q1, including the completion of the power transmission line tower construction, and in terms of water supply, the seawater intake and the outlet pipes are now in place on the seafloor in preparation for water extraction pipes, and we have entered the hydrotesting phase for the water supply pipelines. I'm proud to say that the QB mine fleet has completed their mass earthworks scope for the tailings starter dam construction, which is now over 85% complete, and the mine fleet has transitioned to open pit activities. Our focus going forward is on system completion and handover of key facilities as we drive towards first copper. Looking into Q2, key milestones include energization of the high voltage power transmission system, which is in progress. completion of the mine area infrastructure that is required for pre-stripping, and we will begin turning over key systems at the concentrator to pre-operational testing, including the Line 1 mills. The photo on the right side of slide 10 shows workers installing the siding on the building which houses the mills. Slide 11 shows the preparation for launching and placement of the second and final seawater intake pipe on the seafloor. this pipe is a key component of our water supply system and was successfully deployed during the quarter on the next slide slide 12 you can see the placement of one of the last modules for the electrical room at the desalination plant and the reverse osmosis units on the left side of the photo on slide 13 it shows preparations for the hydrotesting phase of the water supply pipeline which is a key step in construction and pre-commissioning of the pipeline for supplying water to the project for commissioning and operations. On slide 14, you can see workers mounting the concave inside the primary crusher. The major mechanical components associated with the primary crusher are now all installed. Next, you see the transfer station on the overland conveyor that will transport ore between the crusher and coarse ore stockpile. We will begin shortly the installation of the conveyor belts in this area. Slide 16 illustrates the progress we are making on the assembly of the stockpile dome, which is well advanced and approaching its final height. The approximately 15-storey high stacker structure can be seen feeding into the dome. On slide 17, here we have an overall view of the concentrator area from February with the stacker structure and the grinding building in the background and the flotation area in the photograph. The focus in this area is on completion of line 1 preparation for first copper and as mentioned earlier in q2 we will begin turnover of key systems this area to pre operational testing including the line one bills on slide 18 you can see the progress on the cyclone station which sits above the future tailings impoundment area cyclone station will be used to classify the tailings once we are in operation and finally on slide 19 you can see the starter dam where we continue to make excellent progress and As I said, the tech mine fleet has completed the mass earthworks scope for the starter dam, and it has transitioned back to the mine area. So in summary, we continue to be very pleased with the progress we are making, and we are excited to build on our construction successes to date with a focus on delivering to the project's key milestones. And I encourage all of you to visit the investor section of our website to watch the latest progress video and view the most recent photo gallery. With that, I will now pass it over to Jonathan to discuss our financial results.