This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Ladies and gentlemen, thank you for standing by. Welcome to TEC's second quarter 2023 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, 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. This conference's call is being recorded on Thursday, July 27th, 2023. I would now like to turn the conference over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.
spk03: Thanks, Gaylene. Good morning, everyone, and thank you for joining us for Tech's second quarter 2023 conference call. Please note, today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. The Act 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 highlights from our second quarter results. Crystal Prestai, our CFO, will follow with additional color on the quarter. And then Jonathan will conclude the call today with an update on our copper growth strategy. And of course, we will then open the lines to questions. With that, I'll turn the call over to Jonathan.
spk02: Thank you, Fraser, and good morning, everyone. Now, before we get into the second quarter results, I'd like to begin by taking a moment to say that we are deeply saddened by the fatality that occurred in May 2023 at our Croblada Blanca operations. Health and safety is a core value at Tech, and we are focused on our goal of every single person going home to their families safe and healthy each and every day. We undertook a thorough investigation and learnings from the investigation are being shared across tech and with our industry peers to help prevent future incidents. So moving now to the highlights for the second quarter on slide four. Overall, we maintain positive momentum through the second quarter with achievements across all four pillars of our value creation strategy. First, we made significant investments in copper growth. We achieved a major milestone at QB2 with the first sale of copper concentrate, and we are advancing ramp up towards full production rates later this year. We also continue to progress our copper growth pipeline. We achieved another major milestone with the receipt of regulatory approval from the Peruvian Environmental Authority for our Zafranal project. The team did a fantastic job throughout the process, and we are very pleased to have the permit in hand. And for San Nicolas in Mexico, we closed the joint venture transaction with Agnico Eagle in the quarter and the new project management team finalized the EIA permit application in June. Second, our continued focus on execution and our operations drove strong financial performance. We generated $1.5 billion in adjusted EBITDA and ended the quarter with $7 billion of liquidity. Third, Our strong financial performance enabled us to return cash to shareholders while continuing to strengthen our balance sheet. We paid our quarterly base dividend, repurchased $85 million of Class B shares through the NCIB, and repaid the first biannual installment on the QB2 project finance facility. And finally, we advanced our governance and sustainability initiatives. We made a step change in the advancement of our governance structure with the completion of the plan of arrangement to implement the sunset of the multiple voting rights attached to the Class A common shares. We also marked the one year anniversary of tech becoming the first mining company globally to commit to the goal of becoming nature positive by 2030 with a $10 million donation to the Chilean Nature Fund. This will help protect a critical global biodiversity area. Since the launch of our nature positive program, I am particularly proud that tech has helped conserve over 51,500 hectares, which is equivalent to four and a half times the size of the city of Vancouver. Further, we are pleased that Trail became the first standalone zinc processing site globally to be awarded the zinc mark, based on 32 responsible production criteria, including GHG emissions, community health, and respect for indigenous people's rights. And we were honored to be named one of Corporate Night's Best Corporate Citizens in Canada for the 17th consecutive year. And looking at our progress at QB2 on slide five, as noted earlier, we achieved a major milestone at QB2 with the first shipment and sale of copper concentrate in the second quarter. Line one is operating well as per expectations, and line two is now in commissioning. The concentrate pipeline, concentrate filter plant and storage systems at the port are now in operation. Due to delays in construction and commissioning, we have updated our QB2 2023 production guidance to 80,000 to 100,000 tons, but continue to expect to be operating at full production rates by the end of the year. So total QB 2023 production guidance has been revised to 90 to 110,000 tons, which includes 10,000 tons of cathode. Our project capital cost guidance of 8 to 8.2 billion US dollars remains unchanged. And with that, I will hand it over to Crystal for additional color on the quarter.
spk01: Thank you, Jonathan. I'm going to start on slide seven with our financial results for the quarter. As Jonathan noted, we delivered solid financial performance in the quarter, driven by robust commodity prices and steelmaking coal sales. Overall, adjusted EBITDA was $1.5 billion, and adjusted profit attributable to shareholders was $643 million, or $1.22 per share on a diluted basis. We paid $65 million in quarterly base dividends completed $85 million in share buybacks, and reduced our debt through the first semi-annual repayment on our QB2 project finance facility of $147 million U.S. We've outlined the key drivers of our profitability on slide 8. Adjusted EBITDA was $1.5 billion in the second quarter. Compared to the same period in 2022, the decrease was primarily driven by lower prices for our principal products which were at historically high levels last year, particularly for steelmaking coal. Lower prices were partially offset by a weaker Canadian dollar. Lower copper sales volumes, continued inflationary pressures on our unit costs, and the sale of Fort Hills also had a negative impact on our Q2 EBITDA compared to last year. Looking ahead, we remain highly focused on managing our controllable operating expenditures. While diesel and other fuel costs have materially declined from last year, we continue to experience inflationary pressures in the cost of key supplies, including mining equipment, tires, and contractors. Our underlying mining drivers remain relatively stable, and the continued pressures on certain input costs are already reflected in our 2023 Sustaining Capital and Annual Unit Cost Guidance, which are unchanged. Looking now at each of our business units in more detail and starting with copper on slide nine. Copper production of 64,000 tons was 10% lower than the same period last year, reflecting expected lower grades as well as unplanned maintenance at Highland Valley and reduced milling rates in response to cyclone impacts at Antamina. Copper production in the second half of the year is expected to be strong. with our annual copper production guidance excluding QB2 unchanged. Net cash unit costs were higher than the same quarter last year due to lower production and higher consumable costs, particularly for power, as well as higher maintenance costs. We expect copper unit costs to be within our annual cost guidance range with higher production in the second half of the year. Importantly, we achieved the first sale of copper concentrate at QB2 in the quarter. Looking forward, as Jonathan mentioned earlier, Line 1 is operating well and Line 2 is in commissioning. We continue to expect QB2 to reach full production rates by the end of 2023. However, recent changes to IFRS require us to recognize sales proceeds and related costs associated with products sold during ramp-up and commissioning through our earnings. Historically, we and others in the industry would have capitalized these amounts during ramp-up through to commercial production. We expect this change in accounting treatment to increase our unit operating costs for QB2 during ramp-up. As a result, we do not anticipate generating significant gross profit from QB2 in the third quarter, despite the expected ramp-up in production rates. As Jonathan noted earlier, we updated our full year production guidance for QB2 to 80,000 to 100,000 tons from 140,000 to 170,000 tons. As a result, our total annual copper guidance has been updated to 330,000 to 375,000 from 390,000 to 445,000 tons. Our previously disclosed QB2 production guidance for 2024 to 2026 is unchanged. Turning now to zinc on slide 10. Red Dog zinc production of 134,000 tons decreased by 7% compared to last year as a result of lower grades as expected in the mine plan, as well as reduced power
Disclaimer