Teck Resources Ltd

Ladies and gentlemen, thank you for standing by. Welcome to TECC's third 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. To join the question queue, please press star then 1 on your touchtone phone. Should anyone need assistance during the conference call, they may signal an operator by pressing star then 0 on their telephone. This conference call is being recorded today, Thursday, October 27th, 2022. I would now like to turn the conference over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks, Ariel. Good morning, everyone, and thank you for joining us for Tech's third 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-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. Jonathan Price, our CEO, will begin today's call with comments on a strategic focus and priorities. Red Conger, our president and chief operating officer, will follow with operational highlights from the quarter, including a progress update on our flagship QB2 copper growth project in Chile. Crystal Pristai, our interim CFO, will then provide additional color on financial and operational highlights. We will conclude today's session with a question and answer period to address any remaining questions. With that, I'll turn the call over to Jonathan.

Thank you, Fraser, and good morning, everyone. It's a pleasure to address you today as the CEO of Teck. I'm excited by the opportunities ahead for Teck to build on our existing strong foundation and position the company for long term success. In recent meetings with investors, I've been asked whether they should expect any changes to Teck's strategy as I assume the role of CEO. Having been part of the development and articulation of tech strategy for the past two years, I can confidently say our current strategy is the right one to drive long-term, sustainable shareholder value. Now turning to slide four, the heart of our strategy is copper growth. We remain focused on generating value from our industry-leading copper growth profile. QB2 will double our consolidated copper production when it reaches full production next year. And together with the remainder of our portfolio of attractive growth options, has the potential to add five times the amount of our current copper equivalent production. Secondly, we are rebalancing our portfolio of high quality assets towards low carbon metals, in particular copper, where demand is expected to double by 2050, driven in large part by electrification and the low carbon transition. We intend to capitalize on this market opportunity while at the same time reducing the proportion of carbon in our overall portfolio. Third, as we have demonstrated this year, we will balance our investment in growth against returning capital to our shareholders while maintaining a strong balance sheet. To this end, I remain fully committed to our capital allocation framework. By growing responsibly, I believe we can strike the right balance between growth and cash returns to shareholders, while ensuring we are well positioned to weather periods of market uncertainty and volatility. And finally, we will continue to build on our strong sustainability track record. Sustainability is core to our purpose and values, and we view it as a competitive advantage. Sustainability will continue to be fully integrated into our activities and business processes at all levels of our organization. Together with the entire tech team, we are focused on the execution of this strategy as we navigate a backdrop of global economic uncertainty. Now, recently, I've also been asked by investors about my priorities as CEO. As outlined on slide five, my top priority is to continue to advance our long-term copper growth strategy. Our immediate priority is completion and ramp up of the QB2 project as we build capacity in the organization to advance our suite of high quality copper projects. In doing so, we will rebalance our portfolio to low carbon metals and reduce the overall proportion of carbon in our portfolio. Second, we remain laser focused on operational excellence, including through the deployment of autonomy and digital technologies. And finally, we're committed to maintaining our industry-leading sustainability performance as we work to deliver on our short and long-term targets. And collectively, these priorities will position us to meet growing demand for copper driven by the global net zero transition while returning significant capital to our shareholders. Now, to that end, we executed on a number of important transactions in the quarter. On July 20th, we announced an agreement with PolyMet in which Glencore retains a majority equity interest, to advance their NorthMet project and our Masaba mineral deposit in Minnesota. And on September 16th, we announced an agreement with Agnico Eagle to advance our San Nicolas copper-zinc project in Zacatecas, Mexico. Agnico Eagle will subscribe for the first US $580 million of shares in the tech subsidiary that owns San Nicolas. giving Agnico Eagle a 50% effective interest in San Nicolas. Together, these transactions de-risk our positions, provide a pathway to development, and will crystallize significant value from our copper growth pipeline. Clothing is subject to customary clothing conditions, including receipt of regulatory approvals. Further, just yesterday, we announced an agreement to sell our 21.3% interest in Fort Hills to Suncor for growth proceeds of approximately $1 billion in cash. The sale of our energy assets advances our strategy of pursuing industry leading copper growth and rebalancing our portfolio of high quality assets to low carbon metals. It is the culmination of an extensive process we undertook to evaluate all options to realize the highest value for our shareholders. The transaction value is consistent with the current outlook for the Fort Hills business reflected in the most recent in-depth review conducted by Suncor and the resulting long-range plan for the project and is in line with comparable transactions. As a result of the sales agreement, we recorded an after-tax non-cash impairment charge of approximately $950 million in the third quarter. We will review the use of proceeds in accordance with our capital allocation framework in February of 2023. The sale agreement will be effective November 1st. Closing is subject to customary conditions, including the receipt of regulatory approvals. Now turning to our third quarter results, starting with key highlights on slide six. Overall, our third quarter financial results remain strong. primarily due to the continued strength in commodity prices despite the overall economic slowdown. Gross profit before depreciation and amortization was $2.4 billion, a meaningful increase from $2.1 billion in Q3 of 2021. Adjusted EBITDA was $1.9 billion, and adjusted profit attributable to shareholders was $923 million or $1.74 per share on a diluted basis. Year to date, we have returned $1.4 billion to shareholders through buybacks and $468 million through dividends, all the while paying down $1.2 billion of our debt outstanding. During the quarter, we achieved a number of important milestones at QB2, including commissioning of our power transmission system, significantly advancing commissioning of the desalination plant, and beginning pre-operational testing of the Line 1 grinding mills, all of which are on the critical path for First Copper. Subsequent to the quarter, we announced plans to deploy two electric tugboats at our Neptune terminals. Collaborating with transportation providers to develop green transportation corridors is part of our climate action strategy and supports our goal of net zero emissions by 2050. Crystal will provide a detailed run-through of our business performance and guidance updates in a few minutes. However, I want to highlight three key changes on slide eight. First, for QB2, we have revised our construction capital cost guidance to US $7.4 to $7.75 billion, based on our current foreign exchange assumptions, cost pressures related to weather and subsurface conditions, and other factors. This is an increase from our prior guidance of US $6.9 to $7 billion. We continue to target first copper from line one late this year. However, if productivity impacts persist, this will be delayed into January 2023. First copper production is part of the continuous commissioning plan for mechanical completion of line one, which will be followed by mechanical completion of line two and ramp up through 2023. Quebrada Blanca copper production is expected to ramp up over 2023 following commissioning of QB2. We now expect QB copper production to range between 170 and 300,000 tons per year in 2023 to 2025 compared with the previous range of 245 to 300,000 tonnes per year, with 2023 at the lower end of the guidance range. Second, for steelmaking coal, we have updated our three-year production guidance. Our steelmaking coal production capacity across our four operating mines in the Elk Valley is approximately 26 to 27 million tonnes, and we had operated at those levels for most of the period between 2014 and 2019. However, over the past three years, external challenges largely out of our control, and more recently, reliability challenges at our up-view plant, have impacted our ability to operate at those levels. These challenges include severe weather-related events, including rain, flooding, extreme cold, and wildfire events in 2021, as well as the COVID pandemic and the associated ongoing disruption to supply chains and labor availability. As a result, to better reflect the increasing frequency of these adverse events and associated risk of impacts to our operations, we have reduced our three-year production guidance, commencing in 2023, to 25 to 26 million tonnes from 26 to 27 million tonnes previously. Third and finally, our outlook for 2023 CAPEX. While we continue to expect our capital expenditures for 2023 to be lower than 2022, with the increase in QB2 capital guidance and continued inflationary pressures, we no longer anticipate a reduction of $2 billion as compared to 2022 projected spending levels. We will issue our 2023 capital expenditure guidance in February as usual. Overall, Thanks to our resilience and financial strength, we remain well positioned to manage through any near-term pressures while staying focused on our copper growth strategy. With that, I will now pass it over to Red to provide some operational highlights from the third quarter.