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spk09: Ladies and gentlemen, thank you for standing by. Welcome to TEC's first quarter 2024 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, you may signal an operator by pressing star then 0. This conference call is being recorded on Thursday, April 25th, 2024. I would now like to turn the conference over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.
spk08: Thanks, Kayleen. Good morning, everyone. Thank you for joining us for Tech's first quarter 2024 conference call. Please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. that 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 first quarter results. Crystal Presti, our CFO, will follow with additional color on the quarter. Jonathan will then conclude today's session with an update on our key base metals markets and our progress on copper growth in the quarter, followed by a Q&A session. With that, I'll turn the call over to Jonathan.
spk15: Thank you, Fraser, and good morning, everyone. Starting on slide four, with highlights from a strong first quarter across our business, we completed all major construction at QB, including the shiploader and molybdenum plant. At our completed port facility, we marked the first shipment of concentrate. and I was at QB last week to see the second ship being loaded and departing on time. It was a beautiful sight. We also continue to advance the ramp-up of the molybdenum plant. In January, we closed the minority sale of our steel-making coal business, or Oak Valley Resources, to Nippon Steel Corporation and POSCO, and received US$1.3 billion in cash from NSC. Regulatory approvals for the full sale of the Glencore are progressing as anticipated, closing expected no later than the third quarter of this year. Q1 was a strong quarter from both an operational and a financial perspective. A ramp-up at QB is reflected in our steadily increasing copper quarterly production, and all our previously disclosed annual guidance is unchanged. We also continue to focus on sustainability leadership, including improved safety performance. Our high potential incident frequency rate was lower than the same period last year at 0.06. Together with global industry leaders, we launched the North Pacific Green Corridor Consortium, which will work together to decarbonize the value chain for commodities between North America and Asia. Activities will be focused on pathways to optimize energy efficiency with the specific goal of advancing projects and infrastructure required to achieve meaningful emissions reductions in the near term. And we released our 23rd Annual Sustainability Report, which outlines our performance in 2023 in areas such as decarbonization, diversity, and working towards a nature-positive future. Looking now at the financial highlights from our first quarter on slide five. We reported adjusted EBITDA of $1.7 billion in the quarter compared to $2 billion a year ago. with lower copper and zinc prices and higher unit costs in steel-making coal than at our QB operation, partly offset by higher copper sales volumes and higher realized steel-making coal prices compared to the same period last year. We continue to return cash to shareholders in the quarter, with $80 million in share buybacks executed under the $500 million return authorized by the Board following receipt of the NSE proceeds. We also paid $65 million in quarterly-based dividends. Turning to QB on slide 6. As I mentioned earlier, we completed all outstanding major construction in the first quarter. At the port, we achieved construction completion in Q1, consistent with our guidance, and successfully loaded our first vessel of QB concentrate using the shiploader. The mobilization of the construction workforce is substantially advanced. and the operational ramp up is continuing. We are on track to complete ramp up of the molybdenum plant in the second quarter. Our QB2 project capital cost guidance of 8.6 to 8.8 US billion dollars is unchanged. We produced higher QB copper and concentrate quarter over quarter at 43,300 tons, and we continue to expect progressively stronger production in each quarter throughout the rest of the year. Our full-year copper and concentrate guidance for QB is unchanged at 230 to 275,000 tons. QB unit costs are expected to remain elevated this year, particularly in the first half, consistent with our guidance. This is driven by the cost of alternative logistics, limited molybdenum production in the first half of the year, continued ramp-up, and inflationary pressures. Our full-year guidance for QB net cash unit cost is unchanged at 195 to 225 US dollars per pound. With that, I'll now turn it over to Crystal for some additional color on the quarter.
spk10: Thanks, Jonathan. Good morning, everyone. I'm going to start on slide eight with our financial performance in the first quarter. There are a number of significant accounting and presentation items impacting our results compared to the same period last year. Following the minority sale of our steelmaking coal business in January, Our financial statements now reflect the 23% minority interest in EBR by NSC and POSCO. With our controlling shareholding, we continue to consolidate 100% of EBR's production and sales volumes, revenue, gross profit, and EBITDA. Our profit attributable to shareholders is now based on our reduced 77% ownership of EBR, with 23% of EBR profit attributable to non-controlling interest. This has significantly reduced our profit attributable to shareholders and related EPS compared to the same period last year. It is important to note that despite the non-controlling interest attribution of profit from EBR, we continue to receive 100% of the cash flows generated by EBR through closing of the transaction with Glencore. Our finance expense and depreciation and amortization expense have both increased significantly compared to the same period last year, as construction is complete and ramp-up continues at QB. We are now depreciating most of the QB assets, and we have stopped capitalizing interest on the QB2 project as anticipated. Our adjusted EBITDA declined in the quarter compared to the same period last year. This was primarily driven by higher operating costs at EVR and at QB operations, reflecting elevated costs at QB during ramp-up. It was also driven by negative pricing adjustments, particularly for steelmaking coal. These items were partly offset by higher copper sales volumes and higher realized steelmaking coal prices compared to the same period last year. Now turning to each of our business units in greater detail and starting with copper on slide nine. Our realized copper price was 386 US per pound, down 5% compared to the same period last year. We had strong quarterly copper production of 99,000 tons, an increase of 74% from the same period last year. This was driven by the ramp-up of QB operations, adding 43,300 tons of copper and concentrate production, and higher copper production from Antamina due to increased copper-only ore being treated, as expected in the mine plan. Our cost of sales was higher year over year, primarily due to the inclusion of QB operations, It is also the first full quarter of depreciation of QB's operating assets, as I previously noted, with $125 million recorded in Q1. Excluding QB, our net cash unit costs were US$1.92 per pound, or US$0.09 per pound higher than the same period last year, due to reduced zinc by-product revenue at Antamina, with significantly lower zinc prices. We were pleased that Azamena received approval of the MEIA for its mine length extension from 2028 to 2036 in the quarter. Looking ahead, as Jonathan said, QB's guidance is unchanged and we continue to expect QB production to increase each quarter through 2024. Our copper production guidance of 465 to 540,000 tons and our full year net cash unit cost guidance of US $1.85 to 25 per pound are also unchanged. Turning now to our zinc business on slide 10. In Q1, zinc in concentrate production increased by 15% and lead in concentrate production increased by 10%, both of which were driven by higher mill throughput. At Red Dog, sales of 84,600 tons were within our guidance range. Net cash unit costs were lower than last year as a result of byproduct credit. At trail operations, production of refined zinc and refined lead both improved, although both quarters were impacted by severe weather events. Our gross profit before depreciation and amortization decreased 27%, primarily due to significantly lower zinc prices and lower contracted zinc premiums on refined zinc at trail operations. as 2023 treatment charges applied through March 31st. This was partially offset by lower nanoroyalties, which are tied to Red Dog profitability. Looking forward at Red Dog, we expect zinc and concentrate sales of 50,000 to 60,000 tons in the second quarter, reflecting normal seasonality of sales. Our full year of zinc and concentrate production guidance of 565,000 to 630,000 tons and our full year net cash unit cost guidance of US 55 to 65 cents per pound are both unchanged. At trail operations, our refined zinc production guidance is unchanged at 275 to 290,000 tons. We have begun replacing the KIFSAT boiler at trail, which will impact the lead circuit in the second quarter, but is expected to have minimal impact on our zinc circuit. Turning now to steelmaking coal on slide 11. Despite an extreme freezing event in January that affected both sales and production, we generated $1.4 billion in gross profit before appreciation and amortization. The 8% decline from the same period last year was primarily due to higher unit operating costs and lower sales volumes, partially offset by higher steelmaking full prices. Sales volumes of 5.9 million tons were within our guidance range, and production recovered strongly later in the quarter. Adjusted site cash cost of sales per ton of $112 was higher than last year due to higher repair parts and maintenance spend. With the ongoing shortage of skilled trade labor, we also had increased reliance on contractors. In addition, weather-related productivity impacts and less favorable mining drivers were factors. Transportation costs were down $2 per ton from the same period last year, largely due to reduced demurrage charges. And we were pleased to achieve record throughput at the saturated rock fill at our LFU operations in February. As our 77.5 million liters per day of constructed water treatment capacity continues to ramp up, we are on track to achieve one of the primary objectives of the Elk Valley Water Quality Plan, which is to stabilize and reduce the selenium trend in the Elk Valley. Looking forward, second quarter steelmaking coal sales are expected to be 6 to 6.4 million tons reflecting planned maintenance shutdowns at Elk View and Green Hills. Our full year production guidance of 24 to 26 million tons is unchanged. And despite elevated adjusted site cash cost of sales in the first quarter, our full year guidance of 95 to $110 per ton is also unchanged. Turning now to slide 12, our capital allocation framework continues to guide our approach and our priority is to have a disciplined approach to the deployment of capital. Overall, we aim to balance our growth with cash returns to shareholders while maintaining a strong balance sheet through the cycle. Looking at the considerations for the use of proceeds from the sale of EVR on slide 13. In total, we are expecting to receive US $8.6 billion in cash proceeds, including the US $1.3 billion already received from NSC. Our capital allocation framework guided the board in its decision on the use of proceeds from the minority sale of our steelmaking coal business. And as we've already noted, up to $500 million of the NSC proceeds, or 30%, are to be returned to shareholders via a share buyback. Our capital allocation framework will also guide the board's decision on the remainder of the proceeds. We aim to maintain investment-grade credit metrics through the cycle, targeting a net debt to adjusted EBITDA ratio of one times. We plan to reduce our growth debt and maintain or improve our credit metrics. We will also retain additional cash on our balance sheet to fund our near-term copper growth opportunities and to generate strong returns. We continue to expect to pay transaction-related taxes of approximately US$750 million in early 2025. And finally, we continue to expect a significant return to shareholders. in addition to the $500 million buyback previously authorized by the board in relation to the NFC proceeds. The board will determine the amount, form, and timing of these returns. Overall, the significant cash proceeds from this transaction will ensure we are well capitalized to unlock the full potential of our base metals business while maintaining a strong balance sheet and delivering significant cash returns to our shareholders. Turning now to slide 14, We are in a strong financial position with $7.1 billion in liquidity, including $1.6 billion in cash as of April 24th. We ended the quarter with a net debt to adjusted EBITDA ratio of 1.1 times, and we remain focused on maintaining our investment grade credit metrics, as I noted. As mentioned earlier, the board authorized the share buyback of up to $500 million, of which $80 million has already been executed. We also paid $65 million in quarterly-based dividends in March, bringing our total cash returns to shareholders to $145 million in the first quarter. This extends our track record of strong cash returns to shareholders, with approximately $4 billion returned since 2019. With that, I'll turn it back over to Jonathan.
spk15: Thanks, Crystal. Like some of you, I attended SESCO in Santiago last week, and it's clear that we are at a turning point. It's an exciting time in the copper market, especially given that copper prices have run up significantly since Q1 to above $4.40 per pound today. The world is fast turning from debating whether demand for copper would really rise so quickly to wondering where and how we're going to find more. Given that, I'll provide an update on our key base metals markets. So starting with the copper market on slide 16. Concentrate tightness has continued into the first quarter. Global mine production over 2 million tonnes below the original guidance for 2023 and almost 1 million tonnes lower year-to-date, based on last year's projections for 2024. This comes at a time of increased investment in smelting capacity in Asia and India in preparation for stronger demand from the energy transition. Smelting capacity is 3.7 million tonnes higher than three years ago. Spot TCRCs have fallen 100% from 88 to 00 in less than four months, which is now forcing cuts to refine production. Longer term, we see the lack of investment in mining over the past decade as potentially being a constraint for the energy transition. The industry will need to invest around $120 billion in the next five years. The energy transition could add 6.5 to 7 million tons to demand in the next five years, including recognition of new demand from AI and data centers. Importantly, an additional 4.5 to 5 million tons of copper demand growth will flow from grid expansion and refurbishment, urbanization, and a growing global middle class. Moving on to the zinc market on slide 17. Zinc prices have been under pressure for most of 2023 and into Q1 2024, with prices falling a further 2% over Q4 2023. These lower prices have forced the closure of around 500,000 tons of mine production, which will continue through 2024 with an additional 120 to 150,000 tons lost due to fires, floods and strikes. We expect that some mine production will return in 2024, but that net mine production will decrease to 12.6 million tons, which is about 1 million tons lower than projected last year. Similar to copper, tightness in the zinc concentrate market has pushed TCs down from $280 per DMT to a historic low of 30 to 50 per DMT, which is now impacting refined metal production. Metal demand is improving in North America and Europe from a low base, and in Asia due to solid automotive production and strong energy transition infrastructure spending. While we expect mine production to return as prices improve, fundamental market tightness is expected to remain until 2027. Returning to our progress in copper growth on slide 18, we continue to invest in our industry-leading copper growth portfolio in the quarter, reflecting our strategy to balance growth and return of capital to shareholders. At Highland Valley, we continue to respond to information requests from regulators on the permit application for the mine life extensions. Engagement is ongoing with indigenous governments and organizations and key communities of interest. We expect to progress engineering and design, project execution planning, and construction planning for substantial completion in Q1 of 2025. The team at San Nicolas submitted the MIAR permit application in January, and they continue to engage government and stakeholders in support of permit review. They also continue to advance feasibility study work with plans to initiate detailed engineering in the first half of 2025. And at Safranow, we continue to update capital and operating cost estimates from the 2020 feasibility study, and we advanced our construction permits. The project is expected to enter detailed engineering in the second half of this year. And we advanced towards defining de-bottlenecking opportunities and low capital expansions of QV. we expect to finalize project scope and advance permitting by the end of 2024. While we do not expect to sanction any projects this year, we remain focused on advancing near-term projects for potential sanctioning in 2025. Importantly, all projects will be required to deliver an attractive risk-adjusted return and will compete for capital in line with TEC's capital allocation framework. Reviewing our priorities on slide 19, We set up several key priorities for 2024 to ensure we can continue to demonstrate our focus on value creation. Completion of the full sale of our steelmaking coal business, where Glencore will acquire a 77% controlling interest in EBR and become the operator of the Elk Valley steelmaking coal mines, is a key priority this year. As I mentioned, regulatory approvals continue to progress. Closing is expected no later than the third quarter. We are also driving safe operational performance across our portfolio. We have embedded known risks into our guidance to ensure we build confidence in our ability to deliver on our market commitments. At QB, we have now completed all major construction, including the shiploader and the molybdenum plant. We are working hard to achieve consistent operating performance at design capacity. At the same time, we continue to advance the development projects in our industry-leading copper growth pipeline which are foundational to our future growth. And we will advance that growth in a disciplined way by following our capital allocation framework to ensure that our capital decisions are value maximizing for shareholders. In conclusion on slide 20, our focus remains on value creation. Our priorities help us to do that, and I'm excited for the opportunities ahead of us. We are committed to responsibly creating long-term value for our shareholders and stakeholders. We are in a unique position to deliver significant value through our strategy, centered on copper growth to capitalize on strong demand in the transition to a low carbon economy. We have current production from a premium portfolio of long life, high quality assets in stable, well understood jurisdictions. In the near term, we are adding to that production through the ramp up of QB. Longer term, we seek to unlock significant value from our copper growth portfolio. and we are pursuing that value-driven growth by employing a rigorous investment framework and continuing to balance growth with cash returns to our shareholders. Thank you. Operator, please open the line for questions.
spk09: Certainly. To join the question queue, please press star then one on your touchtone phone. You'll hear a tone acknowledging your request. If you're using a speakerphone, please ensure you lift your handset before pressing any keys. We ask that you limit yourself to one question and one follow-up. If you wish to remove yourself from the question queue, you may press star, then two. Our first question is from Orist Wakeda with Scotiabank. Please go ahead.
spk03: Hi, good morning. With the BHP bid for, reported bid for Anglo-American, I'm curious whether David Wiltshire- taxi the opportunities out there to add producing copper assets to the portfolio just given your balance sheet transformation post the coal sale that's going to close in Q3 I certainly think. David Wiltshire- Producing assets are a lot easier to add than than building, as we saw with qb to but i'm curious how you see the landscape.
spk15: Hi, Orist, and thanks for that question. I think, firstly, I'd say that the proposed or potential takeover here of Anglo by BHP just reinforces the attractiveness of the long-term fundamentals for copper markets and long-term fundamentals around which we have centered our strategy for the years ahead. For us, this announcement, this news doesn't change anything. We remain very focused on completing the transaction over EVR with Glencore, deploying those proceeds to strengthen the balance sheet to ensure long-term resilience of the company, coupled with investing in the high-quality projects that we have in our portfolio and making a significant return of capital to shareholders. So no change, Oris. We're very focused on delivering that copper growth. I think the market fundamentals are and we will continue to focus on those things that we can control to deliver value for our shareholders.
spk03: Thank you. As a quick follow-up, can you give us an update on QB2? From the Chilco data, it looked like the monthly production was pretty flat in January, February, March. Can you maybe just speak to what the current challenges are, bottlenecks, in terms of breaking through from a production standpoint?
spk15: Yeah, I'll just make some high-level comments and then hand over to Shahzad Barmal. Look, we are where we expected to be at this point in time. Our guidance for this year is unchanged. We expect to increase copper production quarter over quarter as the year unfolds. And with that, I'll let Shahzad give you some further color on where we're up to.
spk14: Thanks, Jonathan. Or, you know, we are addressing the challenges that we have encountered in the first three months. In April, we had a planned shutdown for minor changes and several modifications that we had identified to improve reliability and stability. That shutdown was executed on time very safely, and since we have started up and made those changes, we're seeing some very encouraging results. We fully expect to be within guidance at the end of the year.
spk09: The next question is from Liam Fitzpatrick with Deutsche Bank. Please go ahead.
spk07: Hi, Jonathan. I just wanted to ask a question about a few areas that you mentioned, I think, late last year and earlier this year, which was about conducting a full review of the QB2 project, just to get learnings from that before you embark on your next project. phase of growth potentially from next year and also about bringing, you know, the right expertise and people on board to ensure you've got the right sort of capabilities. As the first question, can you just give us an update on where those things stand?
spk15: Yeah, thanks. Thanks for the question, Liam. You know, we do want to extract as many learnings as we can from the construction of QB2. That's going to be critical as we set ourselves up for future growth here. That review is ongoing. As we've referenced before, we are using external experts to support us with that, and we expect to complete that review in the months ahead. Meanwhile, the project team under Nicola Mills continues to build capacity and capability, including working on systems and processes that will be required to help us deliver those projects reliably in the future in terms of meeting the schedule and the capital budgets that we set out. The findings from the QB review, of course, will be channeled into that team and will be reflected in the continued building of capacity and capability within that area of our business. So, we're very focused on that. As I said, we won't be sanctioning any projects until And of course, we'll only sanction those projects subject both to permits, but also to favourable economics and returns. But we are working hard now to ensure that we set ourselves up for success in the years ahead.
spk07: Okay, thank you. And as my one follow-up, I think it was partly addressed in the previous question, but just to be clear on QB2, could you maybe outline where the current kind of bottleneck or constraint is? And is there a point in the year, perhaps towards around the middle, where there should be more of a step up in terms of the production rates?
spk15: I think, as I said, we expect to see a step up quarter over quarter as we work our way through the year. There's not one particular bottleneck here that we would point to. It's just about establishing stability and consistency of operations day in, day out.
spk09: The next question is from Lucas Pipes with B Reilly Securities. Please go ahead.
spk16: Yeah, thank you, operator. Good morning, everyone. This is Nick Giles on for Lucas. I wanted to ask about the remaining net proceeds of EVR. There's the U.S. $6.9 billion from Glencore, $750 million tax payable in 2025. First, I wanted to confirm that that includes the Glencore proceeds. And can you remind us the timing of the $400 million from EVR cash flows related to NSC, and lastly, overall closing costs. So, thank you very much.
spk15: Sure. I'll hand you over to Crystal for an overview of our intended use of those proceeds and then to answer some of those more detailed questions.
spk10: Hi, Nick. Thanks for the question. I think we've been pretty consistent with our messaging around our intended use of the of the proceeds that will come in from Glencore being very consistent with our capital allocation framework. We intend to reduce our debt levels and get to achieving that debt to adjusted EBITDA metric of one time through the cycle. And obviously, we'll be in a net cash position on closing and see that trending down as we deploy cash towards our growth. projects. So, secondly, having cash on the balance sheet earmarked for those near-term growth projects being HBC Mine Life Extension, San Nicolas, and Zaprano. And then, thirdly, returning a significant amount to shareholders. Obviously, the board authorized the $500 million return to shareholders with the NFC proceeds received in January, and I think that's a reasonable proxy to think about as we go forward. And then I think just lastly, in response to your question about the $400 million remaining proceeds from NSC, those proceeds come in through the receipt of 100% of the steelmaking coal cash flows through closing of the Glencore transaction. So you won't see $400 million come in in one payment on closing of that transaction, but rather you're seeing it come in now as we go through and receive that 100% of cash flows
spk16: Got it, got it. Crystal, I really appreciate all that color. Maybe just one follow-up on that. I believe the prior estimate was cash flows of around US $1 billion. Has that changed at all, especially, you know, in the face of kind of weaker prices?
spk10: Yeah, I think that's a fair point. I think there is, you always have to consider the timing of sales and the operating costs as well as the coal prices. So that number will be dynamic as we make our way through. But you've seen, obviously, the gross profit generated from the coal business in the first quarter was very strong at 1.4 billion Canadian dollars. So So I think we're making very good progress, but that number won't be a fixed number, and it depends on those factors.
spk01: The next question is from Carlos de Alba with Morgan Stanley.
spk09: Please go ahead.
spk11: Yeah, thank you. Good morning, everyone. On QB2, again, I read in the release that the operation still had a negative gross profit, but I want to see in terms of EBITDA if the company, if the operation already broke even, And if not, if you can provide any color as to how do you see that, obviously, you know, at a spot, say a streaming spot, corporate prices, how do you see the path for positive EBITDA in the operation?
spk01: Thanks, Carlos.
spk10: I think that in answer to your question, we don't disclose a separate number for QB EBITDA, but I think just in relation to where production levels were and costs were in the quarter, we were in a lost position from an EBITDA perspective. As we ramp up production through this year, we can expect that that should improve. If we look at the run rate projections we provided when we did the investor day at QB, using a range of $350 to $450 for copper price, we got to Canadian $1.7 to $2.6 billion of EBITDA generation from QB once production rates were up to full steady state.
spk11: All right, great. Thank you. And then the follow-up is on the cost, on the call operation. You faced some difficulties in the quarter, and your adjusted side cash costs of sales were elevated, basically on some equipment failures. You retained your guidance for the year, which obviously assumes or suggests that things are going to improve, but I want to see if there is any color as to how things... It came out in March and April, just to get a sense of the cadence on that improvement.
spk15: Yeah, thanks, Carlos. I'll unmute you as Robin Sharma, the president of the coal business.
spk05: Thanks, Carlos. Yeah, there was a few issues through Q1, probably exasperated by the cold snap we had. We did have a number of equipment failures that occurred, nothing major, all pretty much temporary or resolved through that period. With regards to March and April as we go into those months, we've actually been performing quite strong. So our availabilities are back up, the equipment's back up. We had to get through that period of cold and then recovery from that. So I think things are well on track and just review your forecast this morning and we are well within guidance here through the rest of the year.
spk13: So things are looking much better.
spk01: The next question is from Bill Peterson with JP Morgan. Please go ahead.
spk00: Yeah, hi. Good morning, and thanks for taking the questions. A little bit of follow-on to earlier question about use of proceeds for some of your growth projects. I guess if you look at it today, how would you stack rank between San Nicola, Zafranol, the QB expansion, QB asset expansion? And additionally, for the even longer-term assets, given where we, you know, see, you know, positive trends in copper, any opportunity to pull these forward or even maybe conversely, with the interest in M&A broadly, especially as we see today, would there even be interest to sell some of these assets that you may have?
spk15: Yeah, thanks for that question, Bill. Just picking up with some of the near-term projects here, we very much manage them as a portfolio, of course. They all have different risk and return characteristics. HBC being a brownfield and a relatively simple project here in British Columbia. Canada is certainly at the lower risk end of that portfolio. San Nicolas in Mexico, 50-50 JV with Agnico Eagle, a relatively simple greenfield project in terms of the scope with respect to what's needing to add very little ancillary infrastructure to that as we can tap into available roads, power, port facilities, etc., And then Zafranal in Peru, you know, a little more complex than San Nicolas. But, you know, again, nothing like what we'd undertaken at QB2. So, you know, a portfolio we think of both brownfield and greenfield projects, very manageable. One of those executed under a joint venture with Agnico. And we will, you know, progress all of those to complete studies, complete engineering, obtain permits. So it will enable us to make decisions on sanctions always with a primary view on optimizing shareholder value through the decisions that we take there. To your question on the rest of the portfolio, of course, we always evaluate the long-term value of these options to us and how we maximize value to shareholders. whether that's through the progression and de-risking of those projects, whether ultimately through the development of those projects, or whether there are other alternatives for those resources and projects, as you alluded to, with respect to capitalizing on strength in the copper market. So again, a portfolio approach to what we have here. The advantage we have, of course, is a fairly significant suite of options across different jurisdictions. which does give us choices and will make those choices very thoughtfully with a focus on creating value.
spk00: Thanks for that, Jonathan. I want to ask about a lesser discussed segment of your zinc market. You discussed your views a little bit on the supply and demand. Zinc has recently just hit a 52-week high on the LME spot, albeit well off 2022 levels. You discussed some of the supply issues. I guess, you know, against the context of what you put in your slides where you see a slight surplus over the next few years, how should we think about the supply-demand trends within zinc and expectations around the direction of travel in terms of pricing?
spk15: Yeah, always happy to answer questions on zinc. It is one of our favorite commodities. So let me hand you over to Ian Anderson, our Chief Commercial Officer.
spk06: Thank you very much for the question. As Jonathan had said, in terms of supply, We have seen mine production down over the course of this year. That, of course, is faced with a period of low pricing that we've seen. And as a result, you wouldn't expect that all of those mines would come on during the course of 2024 or 2025. So we are expecting the market to be in deficit. Chinese concentrate imports last year were up about 14%, while at the same time as we set mine production down. So Chinese smelters bought quite aggressively at the end of last year. That then contributed to the low TCRCs that we're seeing, and I would describe the market as in tightness right now, and that's reflected on the TCRCs. So optimistic about that, though, again, very tight supply-demand balance, and that depends both on smelters and their condition, and similarly mine production.
spk01: The next question is from Brian MacArthur with Raymond James.
spk09: Please go ahead.
spk04: Good morning, and thank you for taking my question. It again goes back to the coal cash flows. Can you maybe just talk a little bit about your stripping over the next few quarters? Because again, you give annual guidance, but if this closes in Q3, you obviously won't get annual numbers. But in the first quarter, your capitalized stripping was like at a runway well above the high end of your guidance for the year. And conversely, your capital spend um is at the low end so as we're trying to figure out the cash flows available um to you since this will should close um before your end is it is it all more weighted on the capital and the capitalized stripping is it heavily weighted the q1 q2 and therefore it's going to you know depress the cash relative to an annual number or can you just talk a little bit about how that goes throughout the year
spk15: Okay, the highest level, Brian, I would say that, you know, don't assume any major differences quarter on quarter here for the way that the business is operating. You know, we expect this to be fairly consistent. But I suggest you get over Fraser, post a call, and he can break you through that in a bit more detail.
spk04: Okay, well, maybe just ask a bigger, higher question, though. Is there nothing you see then that really changes that original estimate of a billion U.S. cash flow? flow over the time period from when you originally announced the deal in November for the 12 months. That's still as good a number as anything else, other than maybe prices were higher. Is that a fair comment?
spk15: Well, as Crystal said, prices will be a big variable in that. We've seen pressure in the unit operating costs, at least in the first quarter of this year. And of course, ultimately, the timing of closing the transaction will be a big determinant as to the quantum of cash flows flow to tech ultimately there. So there are a few moving pieces there, but from an underlying operational perspective, including the key mining drivers here, nothing significantly different from what we assumed in our plans.
spk04: Great. Thanks, Jonathan. That's what I was after. Thank you.
spk13: Thanks, Brian.
spk01: The next question is from Dalton Barreto with Canaccord Genuity.
spk09: Please go ahead.
spk02: Thanks. Good morning, everybody. Most of my questions haven't answered, but Jonathan, I just want to circle back to M&A again, just for a quick second. I just wanted to get your thoughts on, I mean, you've allocated most of your proceeds from the Glencore sale to your growth pipeline, but I want to get your thoughts on the buy versus build argument, just given valuations in the market today. Thank you.
spk15: I mean, just to sort of clarify on the allocation of those proceeds, Dalton, you know, we're allocating a fair bit of that to debt reduction and we'll allocate a significant portion of that to returning cash to shareholders. You're right in that the balance then of those proceeds we will be using to invest in organic growth. You know, of course, we look at the, you know, like everybody, you have to look at the buy versus build dynamics in the market. We think in particular with the projects we have ahead of us here, which are smaller in scope and complexity, that their capital intensities will be competitive and are likely to be more competitive than the acquisition of assets through M&A, again, which you can assess on a dollar-per-tonne of production basis. So that's the reason that we're pursuing the strategy we are, because of the quality of the projects we have in the portfolio, the capital intensity that they can offer, and therefore the returns that will be available for value creation.
spk13: Great, thank you.
spk01: I will now hand the call back over to Jonathan Price for closing remarks.
spk15: Yeah, thank you and thanks everyone for joining us today. Just to reiterate, we are operating well right now and we've maintained guidance across all areas of the business. We're very happy to have QB construction behind us and the ramp up of that world class operation is proceeding to plan. We are focused on the completion of the EVR sale and the thoughtful allocation of proceeds with a focus on creating value for our shareholders. And we believe we have the right portfolio, the right people, and the right opportunities to create significant long-term sustainable value for shareholders. As ever, any further questions, please reach out to Fraser or the IR team and have a great day.
spk09: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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