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spk04: Welcome to TEC's second 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, July 27, 2022. I would like to turn the conference call over to Frazier Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.
spk02: Thanks Patrick. Good morning everyone and thank you for joining us for Tech's second quarter 2022 results conference call. Please note today's call contains forward looking statements. Various risks and uncertainties may cause actual results to vary. Tech 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 gap measures throughout this call. Explanations and reconciliations regarding these measures could be found at our MD&A and the latest press release on our website. Today's conference call is not quite an ordinary call. Not only have we reported our fourth consecutive quarter of record setting profitability, so as you know, we've announced President and CEO succession. So our format will be slightly different today. To begin, Dawn and then Jonathan will make some opening comments. They will then take us through our regular quarterly results presentation, followed by Q&A. We'll then end with Don's closing remarks. With that, for one last time, I will hand the call over to Don Lindsay, our president and CEO.
spk08: Well, thank you very much, Fraser, and good morning, everyone. Welcome to the second quarter call. As I guess you all know, yesterday I announced my retirement from tech. This will officially be the 71st quarterly earnings call that I've led since 2005. and my final one with tech. And as such, I'm going to make a few opening comments about my decision and the transition, and then a little bit of reflection about my last 17 plus years in the industry and the tech. And then I'll turn it over to Jonathan Price, our new CEO elect, for him to make some remarks. And when we get to the Q&A today, since this is my last time, you're welcome to ask me anything. This is your ask me anything moment, and I will try to answer. Though, as you will understand, I may be precluded from answering some questions. So it's tough to say goodbye to a company and to a team that you've been a part of this long and that you admire so much. And there is no perfect time. The fact is, a lot of planning and preparation have all led up to this point. The board, in fact, established a succession committee two and a half years ago. And as you know, from a big picture point of view at Tech, we are reshaping and rebalancing our portfolio to have a bigger focus on copper and less on carbon. And with that shift to a new phase of growth for tech, it is important to shareholders in particular that the strategy is owned and led by the CEO who will be around and accountable for it in the longer term. And I clearly wasn't going to be the one to be around. I will be 64 later this year. So I knew that this was the right time to make this decision to get the new team in place and to just get on with it. Board and I have been working closely together on transition planning for several years with the goal of having a seamless transition as possible. We're also, of course, drawing close to completion of QB2 and first copper. We're all very excited about it. And that marks a major shift in tech's trajectory towards becoming a major global copper player. And it isn't just QB2. We have not one, not two, but four projects that could be in production as early as 2026. This announcement also comes as we mark our fourth consecutive record-setting quarter in a row, $3.3 billion in EBITDA, $1.8 billion in adjusted earnings, and in the last 12 months, we've reported $5.7 billion in earnings. These results really speak to the strength of not just Texas assets and certainly commodity prices with a big contributor, but also to the strength of the incredible team of people that we have here. Now, looking back, when I joined Tech on January 1st, 2005, my initial focus was on rejuvenating our resource base to ensure that we could maintain production over the long term and to position us for future growth. We were, I would say at the time, resource challenged. In fact, Highland Valley Copper was scheduled to close forever in 2008, just as an example. So the early years were all about getting a hold of resources. We delivered on that through some key acquisitions, such as ore resources, global copper, Fort Hills, and ultimately the full ownership of the Ford and Coal Trust, in addition to investing year in, year out in exploration. And ore resources, of course, gave us QB. In QB at the time, we knew about eight deep drill holes below the oxides that suggested that sulfides would be there. But they might not have been. It was a bit of a risk. But by the end of this year, we are on track to report 11 billion tons of resources, and that is one of the top 10 resources in the world. As a result, TEC's total reserves and resources across all commodities on a copper equivalent basis have increased over three and a half times since 2005. So today, we are resource rich, and the new team has a lot to work with. Next, we transitioned into converting those resources into production and cash flow to realize that potential. through the construction of key projects like the Highland Valley Mill Optimization, which, combined with various pushbacks, have to extend the life out to 2027 and will extend it again out past 2040. The VIP2 project at Red Dog, which meant that instead of the production dropping from 550,000 tons to something starting with a three, it stayed over 500,000. So it was like building a whole new zinc mine. There was the construction of Port Hills, rebuilding key assets to trail the two acid plants which were so important and helped actually increase production, there was rejuvenating the Elk Valley steelmaking coal operations to drop them from the high third quartile, in fact, edging into the fourth quartile in the cost curve, right down to the second quartile. And then, of course, commencing construction of QB2. With the upcoming completion of QB2, consolidated copper production capacity will double, and we are uniquely positioned to double again. And that includes the planned QB mill expansion, which could add a further 150,000 tons of production. And we have numerous other assets through Project Satellite, including the Advanced Saffron L and St. Nicholas projects and our recently announced Masaba Polymet joint venture with Polymet backed by Glencore. Together, these projects could add five times the amount of our current copper equivalent production and make tech a very significant copper producer. At the same time as we did all this, we worked hard to foster a culture of safety and sustainability in every corner of the company, including reducing total recordable injury frequency by 80% compared to 2005 and reducing high potential incident frequency by 90% since 2010. Our people really live those values day in and day out, demonstrating that it truly is possible to provide essential metals and minerals with the smallest footprint possible all the while creating jobs and prosperity for people and communities. I am very proud of how far we've come and where this company is today. Tech is in an enviable position in our industry with unparalleled copper growth optionality, strong production from world-class operations, leading sustainability performance, and a purpose- and values-driven employee culture that is second to none. I'm looking forward to supporting the transition to Jonathan and Red's leadership over the next few months, I'll also be staying on to support them in an advisory capacity in the role of Executive Vice Chair into the second quarter of 2023. But most of all, I'm very much looking forward to seeing tech transition into this next phase of growth and value creation, and very importantly, listen carefully, and returning substantial capital to shareholders. With that, I'll pass it to Jonathan for comment, and then we'll move on to the actual earnings presentation and Q&A. Jonathan, over to you.
spk01: Thanks, Don. First, I would like to recognize Don's exceptional leadership of tech for more than 17 years. As mentioned, we've just announced our fourth consecutive set of record financial results, an outcome which is the product of many years of building a great team and a great culture, both of which were central to what attracted me to tech. Second, I want to reinforce the strength of tech strategy and growth foundation. We have a portfolio comprising some of the industry's best mining assets, and we have a track record of operational excellence and leadership as a responsible and sustainable miner. And we're continually striving to improve through innovation and the deployment of digital technologies. We also have a suite of copper growth options without parallel amongst our peers. This is all the product of long-term strategic thinking, a clear-eyed focus on value, and creative commercial deal-making. As Don has indicated, and this is important, there is tremendous additional value to be unlocked in our portfolio. And I and my team are fully committed to working to realize that value for shareholders. Finally, I want to personally thank Don for the trust he has placed in me over the past two years. He has been generous in the time he has spent helping to build my knowledge and appreciation of Tech's legacy, our values, and the opportunities we have ahead of us. And it is a great honor to be appointed as Tech's next CEO. Of course, I'm also very fortunate to have Red Congo working closely with me in the role of president and COO, and I know his leadership track record and depth of industry experience will be invaluable. I'm very excited for the opportunities ahead and to be leading tech through the next chapter. Now back to Don to take us through the quarterly results presentation.
spk08: Okay, thank you very much, Jonathan. So we'll now turn to slide four on the presentation, and we'll go through the highlights. We're pleased to report our second quarter 2022 results, which marked Tech's fourth consecutive quarter of record-setting EBITDA and profitability. We delivered record-adjusted profit attributable to shareholders of $1.8 billion, which is more than five times higher than Q2 last year, and record-adjusted EBITDA of $3.3 billion, driven by strong profitability across each of our businesses. At QB2, we achieved a number of exciting milestones during the second quarter, including the completion of construction of our transmission system, getting the starter dam to its design elevation, and beginning the flow of seawater into the pretreatment area of the desal plant, which is on the critical path for First Copper. And while we execute on this transformational growth, our strong financial performance in the quarter enabled us to further strengthen our balance sheet and return significant cash to shareholders. During Q2, we redeemed US $650 million of outstanding term notes, We paid $67 million in dividends, and we completed $572 million in share buybacks. Yesterday, we declared $0.125 per share dividend, and we authorized a further $500 million U.S. in share buybacks. And this brings our total authorized share buyback program to approximately 1.4 billion Canadian year-to-date. I'm pleased with our commitment to and continued progress in safety and sustainability leadership year-to-date. our high potential injury frequency remained low at 0.1 and building on our long-standing commitment to biodiversity tech became the first mining company to set an ambitious goal of becoming a nature positive company by 2030. our sustainability efforts reflect the passion of our employees for caring for the land where they live and work we are proud of the ongoing recognition by the outside industry we were named to the best 50 corporate citizens in Canada for the 16th consecutive year. Overall, our solid operational performance and strong balance sheet put tech on a very strong footing as we managed through the current inflationary pressures and the slowdown in the global economy. Turning to slide five, as stated earlier, we delivered record adjusted EBITDA of $3.3 billion, which was more than three times higher than Q2 of 2021. Our results reflect meaningful contributions from each one of our business units, particularly steelmaking coal, of course, which delivered record EBITDA of 2.7 billion in the quarter. Not unlike others in the industry, persistent global inflationary pressures increased our overall Q2 operating costs by 14% compared to last year, and half of that is attributable to the price of diesel. Turning to our operations, starting with the copper business on slide 7, Gross profit in the second quarter increased by 5% compared to last year, driven by a 10,000 ton increase in sales that shifted forward from the third quarter as production remained flat year over year. This was partially offset by higher consumables, particularly diesel and transportation costs. Our total cash unit costs increased by 23 cents US to $2.03 per pound. Q2 EBITDA of 210 million included a 251 million negative sediment price adjustment resulting from the decline in copper price towards the end of the quarter. Notwithstanding that, copper prices in Q2 remain well above historic averages at $4.32 US per pound. During the quarter, we signed a new three year collective agreement at Carmen de Andocoyo. And looking forward, our 2022 copper production guidance remains unchanged. We increased our 2022 net cash unit cost guidance for copper to $1.48 to $1.58 per pound from the $1.40 to $1.50 we were before, primarily due to inflationary cost pressures and lower byproduct price forecasts. Moving on to zinc on slide 8. EBITDA and our zinc business tripled compared to Q2 last year to $236 million. The increase was primarily due to substantially higher zinc prices, a 40% increase in zinc and concentrate sales, and higher byproduct contributions. Q2 total cash unit costs are 13 cents or 21% lower compared to last year, largely due to lower smelter processing charges, which more than offset the inflationary cost pressures on consumables and labor. At Trail, the increase in Q2 refined zinc production reflects the zinc roaster maintenance in 2021. but we also recorded a $32 million inventory write down due to the decrease in zinc prices at the end of the quarter. Subsequent to quarter end on July 8th, we reached a new five year collective agreement at Trail. Looking ahead, the Red Dog shipping season commenced on July 4th and we expect sales of Red Dog zinc and concentrate to be 215,000 to 240,000 tons in Q3, reflecting the normal seasonal pattern. Major maintenance activities are planned to trail from September to November, which will impact production. Our 2022 zinc production guidance remains unchanged. We increased our 2022 net cash unit cost guidance from mine zinc to 37 to 43 cents per pound from 32 to 38 cents per pound previously. The increase is primarily due to higher smelter processing charges expected in the second half of the year, as well as higher diesel prices and increased profit-based compensation. On slide 9, our steelmaking coal business unit delivered yet another record quarter with gross profit of $2.5 billion, surpassing the record set last quarter at $1.8 billion. Steelmaking coal EBITDA was $2.7 billion, which was a six-fold increase compared to $435 million last year. FOB Australia price assessments for steelmaking coal hit a record high, of $527 U.S. per ton in the quarter. While prices pulled back in May to exit the quarter at $300 per ton, they remain higher than historical averages. Sales to our customers in China are based on the CFR China price, which averaged $461 per ton in Q2. As a result of strong prices, our realized price reached a record high of $453 U.S. per ton, more than triple Q2 of last year. Production of 5.3 million tons was lower than a year ago due to planned maintenance shutdowns and some plant reliability challenges. Sales were 6.3 million tons in the quarter, which were within guidance. Importantly, our upgraded rail infrastructure and Neptune terminal performed very well through the quarter and demonstrated their value by reducing mine inventories to near historic low levels, enabling us to capitalize on high steelmaking coal prices in the quarter. Looking forward, we expect sales of 5.8 to 6.2 million tons in the third quarter to closely match production as mine clean coal inventories at record low levels. Given the plant reliability and workforce challenges, we lowered our full year production guidance to 23.5 to 24 million tons from 24.5 to 25.5 million tons previously. We increased our adjusted site cash cost sales guidance for the full year to $87 to $92 per ton from $79 to $83 per ton as a result of reduced annual production and higher inflationary cost pressures. Transportation unit costs are expected to decline in the second half of the year, and our full year guidance, though, remains unchanged. Our 2022 sustaining capital guidance for steelmaking coal was reduced by $100 million due largely to a shift in timing of water project spending. Turning to slide 10, our energy business generated $174 million of EBITDA in the second quarter, driven by strong Western Canadian select prices and higher sales. Realized blended bitumen prices in the second quarter averaged $98.42 US per barrel, which was a 72% increase compared to last year. Sales were 3.1 million barrels in the quarter compared to 1.6 million last year when Fort Hills operated on one train only. The ramp up to a two train operation in Fort Hills drove increased production and lowered unit operating costs compared to last year. Further, a planned 20 day maintenance outage was successfully completed in the quarter. And in addition to its positive contribution to the bottom line, Fort Hills provides us with a natural hedge against increasing WTI and diesel prices. Looking forward, adjusted operating cost guidance for the full year increased to $33 to $36 per barrel from $28 to $32 per barrel previously due to higher natural gas and diesel input costs, as well as an increase in contractor costs. But production guidance remains unchanged. Moving on to slide 11. At QB2, we now have approximately 13,000 workers on the project, and we are proud of the steady progress that we have made through the quarter. In terms of key milestones achieved, we have completed construction, of the 220 kV transmission system and are sequentially energizing the electrical substation. In terms of water, we began pumping seawater into the pretreatment area for commissioning. We are 50% complete the hydro testing of the water supply pipeline and pump stations. At the mine, we completed the starter dam to its design elevation. We began system turnovers to preoperational testing of the concentrator. We transferred the truck shop to operations. Our capital cost guidance remains unchanged, while our COVID-related costs have increased to $1.4 to $1.5 billion due to the impact of inflation on labor costs, the ultimate impacts of the Omicron wave that we experienced in Q1, and ongoing inefficiencies, including as a result of COVID-19-related absenteeism, which continues to run at approximately 10% levels. We continue to target first copper from line one the latter part of this year with a focus on system completion and handover. However, if COVID-19 absenteeism and related vendor specialty craft availability continues into the fourth quarter, this may be delayed into January of 2023. Slide 12 shows the progress on the main jetty where we continue to advance the piling and deck construction. They will support the shiploader. Construction progress here has been impacted by marine weather and subsurface conditions. necessitating alternate concentrate shipping arrangements until the shipload was commissioned in the first half of 2023. On slide 13, you can see the desalination plant in the foreground where we are completing the high pressure testing. In the background, you can see the pretreatment area where we have introduced seawater for commissioning activities. Slide 14 shows the completed truck shop that was transferred to operations in the corridor. Slide 15 shows the gas-insulated switchgear inside one of the completed electrical substations that are being sequentially energized, and this substation provides power to water supply pump station 3, one of the key systems that's needed for first copper. Slide 16 shows the completed power transmission lines in the water supply pump station 5, which is one of the stations for pumping water up from the desal plant to the concentrator. We've now completed more than 50% of the pipeline and pump station hydrotesting that's required to advance the system into commissioning. On slide 17 you can see a photo from May of the stockpiled dome assembly and as of today it is almost fully enclosed. On slide 18 you can see an overall view of the concentrator area with the grinding building on the right and the flotation area on the left. The focus in this area is on completion of line one in preparation for first copper. and in the quarter we began turnover of key systems in this area to pre-operational testing. On slide 19, you can see the installation of the liners inside a sag mill at the grinding building. Slide 20 shows a portion of the tailings laundry, which is a concrete channel that conveys the tailings from the concentrated area to the tailings facility. Finally, slide 21 shows the starter dam where we completed all of the earthworks and associated concrete works to bring the dam to its design height, So in summary, we continue to be very pleased with the progress that we are making. We're excited about building on our construction successes to date with a focus on delivering to the project's key milestones. I encourage you to visit the investors section of our website to watch the latest progress video and view the most recent photo gallery. With that, I'll now pass over to Jonathan to discuss our financial results.
spk01: Thanks, Don. As illustrated on slide 23, strong commodity prices drove tech's fourth consecutive quarter of record EBITDA and profitability in Q2. Record high realized steelmaking coal prices increased by nearly $100 per ton quarter over quarter to $453 per ton in the second quarter. While prices have weakened since May, both the FOB Australia and CFR China prices remain above historical averages. Western Canadian Select, the heavy oil benchmark price averaged $96 per barrel in Q2, up 20% quarter-over-quarter and 75% year-over-year. Zinc prices increased by 8 cents to an average of $1.78 per pound in Q2 compared to Q1. And while copper prices declined from the all-time quarterly average record of $4.53 per pound in Q1, they remained well above historic averages with an average of $4.32 per pound in the second quarter. We've outlined the key drivers for our record profitability on slide 24. Adjusted EBITDA of 3.3 billion in the quarter represents an increase of 2.3 billion compared to last year, largely attributable to the strong commodity prices I mentioned. Like others in the industry, we continue to face inflationary cost pressures, which increased our Q2 operating costs by 14% compared to last year. The 75% increase in diesel prices over the same period drove approximately half of the increase. Additionally, increases in the cost of a number of our key supplies, including mining equipment, fuel, tires, and explosives, continue to be driven by price increases in underlying commodities such as steel, crude oil, and natural gas. It's important to note that the primary cost increases are not related to our key mining drivers, such as mine productivity and strip ratios, which remain relatively stable. In fact, looking at those items that were under our control during the quarter, production and operating costs, we generated a net positive impact on adjusted EBITDA versus Q2 2021. However, inflationary pressures on diesel prices and other key input costs, as well as profit-based compensation and royalties, continue to put upward pressure on our unit cost guidance through 2022. Now moving to slide 25. In the second quarter, we generated significant cash flow from operations of $2.9 billion, compared with $575 million a year ago, driven by record steelmaking coal prices. Our capital investments totaled $1.1 billion, including $819 million for QB2 and $212 million in sustaining capital. We also incurred $255 million for capitalized stripping, primarily related to the advancements of pits for future production at our steelmaking coal operations. Once again, higher diesel prices were the main driver of higher than planned capitalized stripping expenditure. Importantly, as Don outlined earlier, our record financial performance enabled us to strengthen our balance sheet and return significant cash to shareholders during the quarter. We reduced our debt outstanding by US $650 million through a waterfall tender of our 2035, 2040, and 2041 notes, further ensuring our ability to maintain solid investment ratings through the cycle and reducing our annual debt interest expense by approximately US $40 million on a pre-tax basis. We completed $572 million in share buybacks through the purchase of a total of 11.5 million Class B shares under our normal course issuer bid, and we paid our regular base quarterly dividend of 12.5 cents per share, totaling $67 million. We ended the quarter with a strong cash position of $2.7 billion, and as of the date of reporting, this now stands at $3.3 billion. Now looking at slide 26, we are pleased to have enhanced our already strong financial position. We have $8.4 billion of liquidity, with a net debt to adjusted EBITDA ratio of 0.4 times, investment-grade credit ratings from all four credit rating agencies, and no significant debt maturities due prior to 2030. We are very confident in our ability to complete QB2 while successfully weathering this period of macroeconomic uncertainty. Adhering to our disciplined capital allocation framework, tech continues to uphold our track record of significant cash returns to shareholders. Year to date to June 30th, we returned to shareholders a total of $404 million in dividends and $662 million in share buybacks, while paying down $1.2 billion of our debt outstanding. And as Don noted earlier, further to our previously announced Canadian $100 million and US dollar $500 million in Class B share buybacks, we announced an additional US $500 million share buyback program yesterday. This demonstrates both our confidence in the long-term outlook for our business and our commitment to balance growth with shareholder returns. Slide 27 outlines our updated guidance for capital investment. For 2022, we have increased CapEx for QB2 by approximately $200 million to a range of $2.7 to $2.9 billion from $2.5 to $2.7 billion previously. At the same time, we have reduced our steelmaking coal-sustaining capex guidance by $100 million. With the completion of QB2, 2022 is expected to be the high-water mark in our capital spend profile. We continue to expect a significant decrease in capital investments in 2023, with a reduction of approximately $2 billion. The decrease is driven by significantly lower QB2 capex. With first copper from QB2 now only months away in the operation, then ramping up to full capacity, we are approaching a major cash flow inflection point where we shift from a period of significant capital investment to a period of significant cash generation. With that, I will now pass it back to Don for closing remarks.
spk08: Thanks, Jonathan. Despite the short-term volatility and uncertainty related to the macroeconomic environment, we are confident in the long-term outlook for tech and our key commodities. The COVID-19 pandemic has accelerated demand for metals and minerals that are essential for a low-carbon world, including copper, zinc, and steelmaking coal. Let's take a look at renewable power as an example. Each megawatt of installed generation capacity for an offshore wind turbine requires up to 9.6 tons of copper, half a ton of zinc, and 50 tons of steelmaking coal. Each megawatt requires that. So each of today's largest 13 megawatt offshore wind turbines with rotor diameter spanning 200 meters and up to 260 meters in height, they require approximately 125 tons of copper, seven tons of zinc and 700 tons of steel making coal. So you can really look at tech as the procurement arm for the clean energy wind power companies. Tech is uniquely positioned as a major supplier of these critical materials required for the development of wind power and also for other renewable energy technologies. In closing, 2022 is a transformational year for tech, and our strong performance here to date has set us on a very strong footing as we manage through the inflationary pressures and the slowdown in the global economy. In the near term, our growth is being driven by QB2, which is months away from producing Bruce copper and is expected to double our consolidated copper production by next year. As we bring on QB2 and advance our copper growth strategy, we will rebalance our portfolio and reduce the proportion of carbon in our overall business. And all of this is in combination with our track record as an industry leader in sustainability and a position as tech to deliver meaningful long-term value to shareholders. With that, I'll turn the call over to the operator to open it up for questions.
spk04: Thank you. You may press star 1 if you have a question. The first question is from Greg Barnes from TD Securities. Please go ahead.
spk05: Thank you, operator. First off, Don, I just want to commend you on your track record at TECO. The past 17 years has been quite a ride. And secondly, how you positioned the company heading into the QV2 construction. I think you did a great job on that front. My question for you is the long-term outlook from your perspective for the steelmaking coal business within TECO. As you highlighted, it is a key element of the decarbonization drive. And clearly, you know, supply is going down, demand is going up. It looks like a pretty attractive business over the long term.
spk08: Yeah, no, I very much agree with you. And let me say congratulations on getting to ask the first question, Greg. The supply-demand situation, you're quite right. I think that supply is going to be constrained, that there aren't that many players who want to invest in new capacity. And even if they did, it's very difficult to finance it or to get it permitted. So I think in the longer term, supply will be challenged, whereas really demand for steelmaking coal will continue to grow as the steel industry continues to grow, reflecting the growth in the overall global population, mostly in developing markets, which will mostly get their steel from blast furnaces. The new green steel technologies are quite a few years away. We're talking decades away. So, yeah, I think the outlook for the business is pretty good from that point of view. That said, there's no doubt that assets under management of something like $40 trillion have declared, you know, policies about investing in companies that produce coal. And, you know, while more and more people are starting to realize that steelmaking coal is absolutely required for a low-carbon future, more and more people are realizing that. But still, there's... There's some restrictions out there, and the board has to be cognizant of that. As I said before, the board has studied this issue intensely for a couple of years now on how best to reshape the portfolio, and that's happening on its own with the growth in copper, and we have a lot of growth in copper. It takes a few years for that to occur, but somewhere in there will be the right answer, and I'll leave that to the board to decide. Okay.
spk04: Thank you. Thank you. The next question is from Aris Waukoda from Scotiabank. Please go ahead. Unfortunately, we cannot hear you. Aris Waukoda from Scotiabank might be on mute. We'll go to the next question from Dalton Barreto from Canaccord Genuity. Please go ahead.
spk07: Thanks, Operator. And Don, Jonathan, and Red, all the best to you guys as you go forward. My first question, I guess, is for Jonathan. I'm just wondering what might change in terms of the strategy going forward, particularly as it relates to things like portfolio construction, M&A, and capital allocation? Thanks.
spk01: Yeah, thanks for the question, Dalton. Look, you know, the strategy that tech has put together now over many years is an incredibly robust one. And it's a strategy that's not built on hope. It's a strategy that's built on the resources that have been put together in this company over many years. And as you know, it's a strategy centered on copper growth. We are incredibly committed to that. As Don has just discussed, you know, we continue to contemplate the balance and the shape of the portfolio overall. and the direction remains moving that towards the metals required for decarbonization. Finally, your point on your question on capital allocation, again, that's unchanged. We are determined to strike a balance of growing our copper business while returning significant cash to shareholders and maintaining a foundation of a strong balance sheet. So all of those elements, Dalton, remain very much intact. The focus of this team going forward will be continuing to execute on that strategy.
spk07: Okay, great. Thank you for that. And then just maybe an operational question or two. You've announced two separate labor agreements here, and I'm just wondering, given the current cost of living environment globally, are you at liberty to discuss what kind of increases are being demanded and what this means for your other operations?
spk08: Well, we generally don't disclose the details of those contracts. I can say that we're pleased with the resolution, the tough negotiation, as they always are, but it provides us with labor stability going forward. And we're very fortunate in that last year at our two largest operations, our three largest operations, Highland Valley, Porting River, and Elk View, all settled long-term contracts. five and in some cases six-year contracts. So generally for the core of the operations of the company, we have labor stability at reasonable agreements going forward.
spk03: Dalton, if I could just add one thing. This actually completes the cycle of all of our labor agreements. So we've been through the whole raft of them in the last several years. In my experience, too, settle for maximum contract durations, like Don mentioned, five years, six years, is a real testimony to the working relationship that this company has with the union, with the workforce. So it sets us up very well for the future.
spk07: That's great to hear. And maybe if I can squeeze one last one. With the decline in the Chilean peso, is there an opportunity to hedge over the next 12 months as you finish QB2 and ramp it up?
spk08: I'll make an open comment and then turn it to Jonathan, but I just want to tell you, we discuss this probably every hour of every day. And that's all I'm going to say. You go, Jonathan.
spk01: Yeah, look, Dalton, it's something we're very much alive to. If you can tell us with some conviction which way the Chilean peso is going to go next, we'd be welcome to get that feedback. Look, it's something we're comfortable to keep floating as we do with all of our commodity price exposures as well as our foreign exchange You know, there's a lot of uncertainty still in Chile with respect to the Constitution and the process that will play out in the months ahead, and therefore it's very difficult to get a good read on which way the peso will go in the medium term. Right now, of course, that's a tailwind for us with respect to both operating costs in Chile and construction costs in Chile, but no hedging action at this point in time.
spk07: That's great. That's all from me, guys. Thank you.
spk04: Thank you. Next question is from Lawson Winder from Bank of America. Please go ahead.
spk06: Hello. Good morning. Thank you for your update, Don. Congratulations on a remarkable tenure at Tech. And Jonathan and Rhett, congratulations on your new roles. I would like to ask two questions. So first would be about the QB2 COVID-19 CapEx increase. So it sounds as though there are some non-COVID-19 elements included in the explanation for the higher capex estimate for QB2. So namely, inflation on labor costs. And I'd just be curious to know what proportion of the increase would be these sort of like non-COVID-specific related costs. And then looking forward, What does that sort of non-COVID inflation component imply for QB and E CapEx expectations? Thanks.
spk03: Yeah, appreciate the question, Larson. Let me just hit on a couple of the highlight points before I answer your question directly. We're really excited about, first of all, being able to get our employment levels up to roughly 13,000 per shift. That's quite an accomplishment after COVID and gives us lots of optimism about getting this thing built and completed this year. A lot of those are key crafts that we need at this point, welders and electricians. We continue to have world-class health and safety performance on the project. And of course, that that's a big contributor to our success as well. When Don talks about a milestone of first energization of the transmission line, there's a whole lot behind that. I mean, we've been commissioning parts of the desal plant using temporary power portable gensets. We now have the substation actually officially on the Chilean grid. So it's thoroughly checked out, 100% functional, and that gives us a step change in ability and performance right now. We have all of the electrical rooms now at site, all of the electrical rooms that we need to not only make desalinated water at the port, but push it all the way up to 14,500 All of those electrical rooms are actually set in place. Cabling is being pulled and terminated for all of those. So those are huge milestones for us that have been achieved in this last quarter. 145 weeks of construction to complete the starter dam to its ultimate height. We're now hydrotesting throughout the system. We've got the pipeline from the coast up to the concentrator divided into about 10 logical sections where we do the hydrotesting. We've completed four of those. We actually have water in flotation cells up at the concentrator now testing hydrotesting vessels like flotation cells, other water tanks, etc. So we're really proud of the team making all that progress in the face of these challenges that you mentioned. So to specifically go at your question, the increases have come in several different categories, one of which has been this labor inflation that you mentioned. When we look at that specifically, that's a Chilean labor practice that's according to law at mid-year, you adjust based on CPI, et cetera. But for these delays that we've been talking about the last year and a half, we wouldn't even be here with doing construction right now. So the inefficiencies that have happened, the social distancing, all the things that we've had to do to keep people safe and healthy on the job have caused this thing to run much longer time-wise and that is related to the pandemic and that's the way we've called that. So as we go forward, we're doing a myriad of things to manage the current situations. We now have the opportunity to take tech personnel that we've hired to run and maintain the operations. They're now participating in commissioning efforts. We've seconded some of them to Bechtel to help with field supervision, productivity oversight, those kinds of things. So we're being, you know, very creative, very collaborative with all entities to, you know, mitigate these things that we're dealing with and, you know, continue to get this thing built. The biggest thing to preventing cost overruns is to get it built and get the contractors off the project, and that's what we're focusing on.
spk04: Thank you. The next question is from Carlos de Alba from Morgan Stanley. Please go ahead.
spk00: Yeah, thank you very much, Don. Congratulations. Jonathan and Red, all the best in the new positions. Maybe the question I have is if you could give us an update on the latest thinking about the oil, sands, energy business within tech, and also any update that you may have in the copper project satellites and different processes that you are pursuing there. Thank you.
spk08: OK, sure. Well, we're very pleased with how Fort Hills is running now with his two trains up and running and it has been performing above plan on many days and weeks, so it's good to see that that happening and that that will only get better from here and continue to drop the costs. As we've said for a couple of years now, once we had it up at full production, we would consider a transaction where it would be held differently. so shareholders could choose whether they want to continue to participate in the energy cycle or not. We're conscious that there are quite a few investors that cannot buy tech when we have a certain proportion of our revenues coming from oil sands, and so that suggests that it should be held in a
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