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spk01: Ladies and gentlemen, thank you for standing by. Welcome to Tech's Q2 2024 Earnings Release and Investors Conference Call. At this time, all participants are in a 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 you need assistance during the conference call, you may signal an operator by pressing star then 0. This conference call is being recorded on Wednesday, July the 24th, 2024. I would now like to turn the conference over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.
spk15: Thanks, Kayleen.
spk07: Good morning, everyone, and thank you for joining us for Tech's second quarter 2024 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 forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call. Explanations and reconciliations regarding these measures will be found under MD&A in the latest press release on our website. Turning to the agenda on slide three, Jonathan Price, our CEO, will begin today's call with highlights from our second quarter results. Crystal Presti, our CFO, will follow with additional color on the quarter, as well as the sale of our steelmaking coal business and the use of proceeds from that transaction. Jonathan will then discuss the transformation of our portfolio and our value creation strategy. We'll then take your questions. With that, we'll do the talk.
spk02: Thank you, Fraser, and good morning, everyone. Starting with the highlights from our second quarter on slide five. At the very top of our list of highlights is the close of the sale of the remaining interest in the steelmaking coal business on July 11th. It's not every day that we receive $7.3 billion in cash proceeds, and this transaction marks an exciting new era for tech as a company focused entirely on providing metals that are essential to global development and the energy transition. We believe that the copper market has strong fundamentals, and we continue to see ongoing urbanization and population growth driving increased copper intensity with additional demand driven by power generation, technology, data, and increased electrification. The long-term outlook for copper is highly resilient. And with the significant proceeds from this transaction, TEP is strongly positioned to capitalize on the growing demand for copper in our new era. With substantial funding retained for our near-term value-accretive projects, which provide us with a pathway to increase total copper production once QB is at full capacity by a further 30%, starting as early as 2028, with significant debt reductions further strengthening our resilient balance sheet, and with the largest cash return to our shareholders in the company's history. Crystal will speak to the use of proceeds in greater detail shortly. Beyond the transaction, there were several highlights from our strong operational and financial performance in the second quarter. We generated $1.7 billion of adjusted EBITDA, a 13% increase from the same period last year, reflecting record quarterly copper production driven primarily by the ramp-up of Cabrada Blanca, or QB. It was also another strong quarter of Red Dog, and we had very strong production in the steelmaking coal business despite two major planned maintenance shutdowns. At the same time, we advanced our industry-leading copper growth portfolio, having achieved several milestones in the permitting processes for the Highland Valley Mine Life Extension and for San Nicolas. We continue to focus on sustainability leadership, including improved safety performance. Our high potential incident frequency rate was 0.11 for the first half of the year, which is a 46% reduction in HPIs from the same period last year. I'm turning to the highlights from QB on slide six. We continue to advance the ramp up during the second quarter. QB copper production increased quarter over quarter to 51.3 thousand tons from 43.3 thousand tons. Robust design and construction of the plant supports the bottlenecking and we remain focused on recovery and throughput. We achieved first production and sales of molybdenum as planned and ramp-up of the molybdenum plant is progressing. And our QB net cash unit costs were in line with our expectations. QB is already starting to contribute to our strong financial results, with $284 million in gross profit before depreciation and amortization generated in the first half of the year, while still in ramp-up. Turning now to the outlook for QB on slide 7. we are seeing continuous improvements in throughput, which is now close to design rates. While we had recurring failures with a pulley in a key overland conveyor, these have now largely been mitigated. At the same time, recoveries have improved as we adjust the clays in the transition oars and improve plant stability. Our focus is on driving recoveries to design levels, and we are confident that we will achieve our target recoveries by year-end. Most importantly, we continue to expect to reach full throughput rates at QB by year end. However, slightly lower than planned oil grades in the second half of the year due to short-term mine access issues related to pity watering and a localized geotechnical issue have resulted in an update to our 2024 production guidance for copper and molybdenum. We've revised our full-year QB copper production guidance to 200% 235,000 tons, 230 to 275,000 tons, and revised our full-year QB molybdenum production guidance from 1.8 to 2.4 thousand tons, from 2.9 to 3.6 thousand tons. In line with our production guidance changes, we've revised our full-year net cash unit cost guidance for QB to US 225 to 255 per pound, from US $1.95 to $2.25 per pound. And while second quarter sales from QB were impacted by a temporary filter plant issue at the port in June, it was resolved by quarter end, and we expect to make up the sales volumes over the balance of the year. Production guidance for QB for 2025 to 2027 is unchanged. Once at full capacity, QV will double our copper production, and we expect our base metals operations to generate significant EBITDA. As shown on the slide, we have the potential to generate more than $5 billion of annual EBITDA. And with sustained capital and capitalized tripping expected to be in a range of $1 to $1.2 billion per year, tech's free cash flow generation potential is compelling. I'll now hand the call over to Crystal to provide further details.
spk14: Thanks, Jonathan. Good morning, everyone. I'm going to start on slide nine with our financial performance in the second quarter. Given final regulatory approval of the sale of Elk Valley Resources, or EBR, was not received until July 4th, we continue to report EBR in our operating results in the second quarter. Starting in the third quarter of 2024, EBR results will be presented as discontinued operations. There are a number of significant accounting and presentation items that impacted our first quarter results, and these continue to impact our results in the second quarter. Consistent with our reporting in Q1, our second quarter financial statements reflect a 23% minority ownership in EBR by NSC and POSCO, and we continue to consolidate 100% of EBR's production and sales volume, revenue, gross profit, and EBITDA given our controlling shareholding position. Our profit attributable to shareholders is based on our 77% ownership of EBR, with the remainder of EBR profit attributable to non-controlling interest. This reduced our profit attributable to shareholders and related EPS compared to the same period last year. We continue to operate the steelmaking coal business in the second quarter and retain all cash flows from EBR until completion of the sale of our remaining 77% interest in EBR to Glencore on July 11, 2024. Our finance expense and depreciation and amortization expense have both increased compared to the same period last year, as we are depreciating QB assets and no longer capitalizing interest on the project starting in 2024. Our solid financial performance in the second quarter reflects record copper production and strong copper prices, as well as strong steelmaking coal sales volumes, which were partially offset by higher depreciation, amortization, and finance expense due to the QV wrap-up and the non-controlling interest resulting from the minority sale of EVR to NSC and POSCO, as I outlined earlier. We returned a total of $346 million to shareholders in the quarter, including $282 million in share buybacks executed under the $500 million return previously authorized by the Board following receipt of the NSC proceeds, and we paid $664 million of quarterly-based dividends. Through the end of June, we had executed $363 million of the board-authorized $500 million share buyback. Slide 10 summarizes the key drivers of our financial performance in the quarter. The increase in adjusted EBITDA in the quarter compared to the same period last year was primarily driven by higher pricing adjustments, primarily for copper but also for zinc, increased sales volumes for copper with record quarterly production, as well as steelmaking coal sales volumes at the top end of our guidance range, and the positive impact of a weaker Canadian dollar. These items were partially offset by higher operating costs across our business and lower steelmaking coal prices. We remain highly focused on managing our controllable operating costs. Higher overall operating costs in the quarter reflect elevated QB operating costs, as well as inflation that is expected to persist throughout 2024 and was contemplated in our guidance for sustaining capital and unit costs. As expected, QB costs were elevated in the first half of the year due to alternative shipping arrangements, ramp-up of the millennium plant, and lower volumes as ramp-up of production continues. Now turning to each of our business units in greater detail and starting with Convert on slide 11. Overall, our gross profit before depreciation and amortization in copper increased 118% in the quarter compared with the same period last year, reflecting a significant increase in the copper price in the quarter and substantially higher sales volumes, partially offset by elevated QB operating costs as production ramp-up continued. We thought copper prices hit a record high of US$4.92 per pound at the end of May, And our realized copper price in the second quarter was US$4.44 per pound, up 17% compared to the same period last year. The ramp-up of QB drove our record quarterly copper production up 71% from the same period last year. And we also had higher production at Highland Valley and Antamina. This was partially offset by lower production at Carmen de Andacoyo due to water restrictions as a result of ongoing extreme drought conditions. The water restrictions improved during the second quarter and are expected to continue to improve in the second half of this year. As expected, our cost of sales was higher year over year as QB operations ramp up and we record depreciation of QB's operating assets. Excluding QB, our net cash unit costs were U.S. $1.82 per pound or U.S. 10 cents per pound lower than the same period last year as a result of lower U.S. dollar denominated operating costs and lower smelter processing charges, partly offset by reducing by product credits for . Looking ahead, as Jonathan outlined, we have updated our 2024 annual copper and molybdenum production guidance and our unit cost guidance for the full year, reflecting changes to QB guidance. We've revised our copper production guidance to 435 to 500,000 tons from 465 to 540,000 tons. which still represents over 55% copper growth year-over-year at the midpoint. Our molybdenum production guidance is now 4.3 to 5.5 thousand tons from 5.4 to 6.7 thousand tons. And our net cash unit cost guidance has been revised to U.S. $1.90 to $2.30 per pound from U.S. $1.85 to $2.25 per pound, primarily as a result of lower molybdenum production as well as lower copper production volumes. Looking now at our zinc business on slide 12. We had another strong quarter at Red Dog with increased zinc and lead production reflecting higher grade and recovery. Zinc sales of 53,000 tons were in line with guidance for the second quarter. However, Red Dog's net cash unit costs were up US $0.04 per pound due to higher costs for consumables and an increase in smelter processing charges. At Trail, refined zinc production was impacted by unplanned maintenance and refined lead and byproduct production was significantly lower, reflecting the planned 70-day shutdown for the replacement of a Kivset boiler. The project was completed on time and on budget, and the boiler has been operating very well since the restart. Overall, our gross profit before depreciation and amortization in zinc decreased 53% in this quarter, primarily due to reduced refined metal sales and zinc premiums at trail. and lower zinc sale volumes from Red Dog compared to the same period last year. The shipping season at Red Dog commenced on July 12th, and we expect Red Dog's zinc and concentrate sales of 250,000 to 290,000 tons in the third quarter, reflecting our normal seasonality of sales. Our 2024 annual zinc and concentrate production guidance of 565,000 to 630,000 tons, and our net cash unit cost guidance of US 55 to 65 cents per pound, are both unchanged. At trail operations, our 2024 annual refined sink production guidance is unchanged at 275,000 to 290,000 tons. Turning now to steelmaking coal on slide 13. This marks our last full quarter of reporting on EBR, and we are finishing on a high note. Sales volumes in the quarter of 6.4 million tons were at the top end of our guidance range, and steelmaking coal prices declined, but they remain strong. And despite two major planned maintenance shutdowns, we achieved very strong production across all of our plants. Adjusted site cash cost of sales per ton of Canadian $112 were higher than the same period last year, driven by higher spend on labor, contractors, and diesel, and less favorable mining drivers. Given the ongoing shortage of skilled trade labor, we continue to have increased reliance on contractors. Transportation costs were Canadian $1 per ton lower than the same period last year, due to lower demurrage charges as a result of continued stable vessel queues. Overall, we generated $1.1 billion in gross profit before depreciation and amortization, reflecting lower realized dealmaking pool prices and higher unit operating costs, partially offset by higher sales volumes and the positive impact of a stronger U.S. dollar. Turning now to the sale of EBR and our use of proceeds from the transaction. Starting on slide 15, we completed the sale of the remaining 77% interest in EBR to Glencore on July 11th and received total transaction proceeds of $7.3 billion U.S. subject to customary closing adjustments. This transaction is a catalyst to transform tech into a pure play energy transition metals company. The proceeds position tech for our next phase of responsible growth and value creation. And as always, we remain committed to our disciplined capital allocation framework on slide 16. This guided our deployment of the proceeds from the transaction. We have a disciplined approach to the deployment of capital, and we aim to balance our growth with cash returns to shareholders while maintaining a strong balance sheet through the cycles. Slide 17 summarizes how we are allocating transaction proceeds. We announced the largest return of cash to shareholders in tax history, with approximately $3.5 billion in total share buybacks and dividends. The share buyback of up to $2.75 billion is in addition to the $500 million share buyback previously authorized following the minority sale of EBR to NSE and POSCO. And through the end of June, we had completed $363 million of the $500 million buyback. The board also authorized a one-time supplemental dividend of $0.50 per share for approximately $250 million, which will be paid on September 27th in addition to our quarterly base dividend of $0.125 per share. We announced a debt reduction program of up to U.S. $2 billion and launched a cash tender offer of U.S. $1.25 billion for our outstanding notes that was subsequently outsized. On July 15th, we completed the purchase of approximately US $1.4 billion of our public notes, and we are assessing further debt reduction opportunities. We expect to pay costs and taxes related to the transaction of approximately $750 million US in early 2025. The remaining net proceeds from the transaction will be retained to fund our near-term copper growth. Once QB is at full capacity, we have a pathway to increase our power production by a further 30% starting as early as 2028 through our near-term projects. These include the mine life extension at HBC, Safranel, San Nicolas, and QB optimization and debodimenting. Our attributable capital cost for these projects is estimated to be U.S. $3.3 to $3.6 billion. Turning now to slide 18 in our resilient balance sheet. Following the close of the EBR transaction, we are now in a net cash position, including $8.7 billion in cash as of today. With the purchase of U.S. $1.4 billion of our public notes on July 15 through the cash tender offer, we have decreased our outstanding term notes to U.S. $1.1 billion. Our total debt outstanding following the cash tender offer is U.S. $4.3 billion, and our net cash position is currently $2.9 billion Canadian. We remain focused on maintaining our investment grade credit metrics supported by our resilient balance sheet. And going forward, we expect to generate higher interest income by the additional cash that we're holding on the balance sheet. At the same time, our annual requirements for sustaining capital and capitalized stripping have declined to one, 1.2 billion following the sale of EVR. QB is expected to generate significant additional EBITDA and free cash flow at full production which will further build on the financial resilience. As demand for copper continues to rise and constraints on new supply persist, the value of high-quality, low-cost copper assets will only increase. Overall, tech is strongly positioned to execute on our strategy for responsible growth and value creation. With that, I'll turn it back over to Jonathan.
spk02: Thanks, Crystal. So going on to our portfolio transformation on slide 20, As I said earlier, tech is now entirely focused on providing metals that are essential to global development and the energy transition. I would like to take a moment to reflect on some of the strategic developments that we've executed on over the past couple of years to get to this point. Last year, we started to refocus our portfolio towards energy transition metals through the sale of our interest in Fort Hills, marking our exit from the oil sands business. We also modernized our share structure with the introduction of a sunset for our Class A shares, reflecting our commitment to strong corporate governance and acting in the best interest of all shareholders. At the same time, we continue to advance the projects in our industry-leading copper growth pipeline. Two key milestones were entering into joint ventures at New Range in partnership with Polymet and at San Nicolas in partnership with Agnico Eagle, which help us to advance and de-risk those projects. And this year, we completed construction at QV, which is the driver for our near-term growth. QV is a transformational tier one asset for tech with a long life, competitive cost position, and meaningful expansion opportunities. And it will be a cornerstone of our copper portfolio for decades to come. And finally, we've completed the sale of our steelmaking coal business, transforming tech into a pure-play energy transition metals company. As Crystal has just discussed, With a significant transaction proceeds in hand, we've announced significant cash returns to shareholders and taken steps to ensure that tech is strongly positioned to capitalize on the growing demand for copper. We remain committed to balancing our growth with further cash returns to shareholders. All of this evidence is our willingness to both set a bold strategy and critically execute against it, always with a focus on value creation. Moving on to our current portfolio on slide 21. With the strategic moves that we have made, our commodity mix is now 100% based metals. We have a solid foundation of long life producing copper and zinc assets that generate strong cash flow today, including Antamina in Peru, Island Valley Copper in British Columbia, and Red Dog in Alaska, and our Cornerstone QB assets in Chile, which will generate strong cash flow at full production. We also have mine life extension opportunities to maintain this foundation, including at Highland Valley and Antamina in the near term. Importantly, while our portfolio mix has changed, our focus on maximizing long-term value for shareholders has not. We remain committed to operational excellence, ensuring we deliver the full value from our premium base metals portfolio. Returning to our industry-leading copper growth of slide 22, Over a decade ago, TEC recognized the value that could be created through a robust pipeline of copper projects. As a result, we have created a highly valuable portfolio of actionable copper growth projects diversified by jurisdiction and scale. Each of these will be a low-cost operation with competitive capital intensities already de-risked through strategic partnerships. TEC is now on track to becoming a top 10 global copper producer. doubling copper production with the ramp-up of QB, with a pathway to further increase production by 30% starting as early as 2028. Our near-term copper projects are high-quality, capital-efficient, and low operating cost projects, which should enable us to move down the cost curve and generate strong returns. We are also exploring optimization of QB to increase production beyond design throughput capacity with minimal capital. And beyond this, by the end of the year, we will develop a definitive plan for near-term, low capital intensity de-bottlenecking at QB. We're progressing the life extension of Highland Valley to allow for continued production of this stable and profitable core asset for another 17 years. Next board will be reviewing the Zafranal project for sanctions as early as the second half of 2025. This capital efficient growth project is expected to have a rapid payback driven by high grades in the early years. And at San Nicolas, we continue to progress feasibility study work and our permitting application. The position is to deliver this low capital intensity project that we expect to generate industry-leading returns. At the same time, we continue to progress our longer-dated projects to ensure that we retain a pipeline of future growth opportunities. Turning to slide 23, we are continuing to create value for shareholders by driving best-in-class, safe, and sustainable operational performance and project delivery, including managing costs, incorporating learnings from the completed independent review of QB2 into our future projects, assessing value-accretive opportunities to expand and optimize our high-quality operating assets, ensuring we continue our disciplined capital allocation to generate strong returns. Executing on our well-funded, capital-efficient, near-term copper growth projects, balancing growth with cash returns for shareholders. Overall, I believe that Tech is uniquely positioned as a pure-plate energy transition metals company with both a premium portfolio of long-life cash-generating assets in well-understood jurisdictions and industry-leading copper growth. We're working hard to unlock the full potential of both with a focus on value creation. I believe that there is incredible value inherent within tech, not just in terms of the quality of our assets and the depth of our copper growth pipeline, but also our responsible and ethical approach to resource development, which is critical to our ability to realize value. So to conclude on slide 24, While we are entering an exciting new era as a pure-play energy transition metals company, we remain strongly committed to our purpose and values, which remain personal to me and to all of us at Tech. As we pursue responsible growth, always focused on value creation, our capital allocation framework continues to guide us in balancing that growth with cash returns to shareholders. We are strongly positioned to capitalize on the growing demand for copper, and we look forward continuing to unlock significant value upside for our shareholders. With that, thank you. And operator, please open the line for questions.
spk01: Certainly. To join the question queue, please press star then one on your telephone keypad. You'll hear a tone acknowledging your request. If you're using a speakerphone, please ensure you lift the 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 Ola Suakadao with Scotiabank. Please go ahead.
spk03: Hi, good morning. Nice to see the progress at QB2. I was wondering if you can give us some more color on this localized geotech issue and specifically What does it mean for grade profile for H2 on copper? And then I'm also wondering if it'll impact 2025 grade.
spk02: Yeah, thanks, Orest. We are very pleased with the ongoing progress at QB2. The quarter-over-quarter improvement, again, as we said, is very encouraging. What I'm going to do is hand over to Shehzad Barmao, our SVP of operations. He'll give you a bit of an overview as to where we are now and the outlook for the second half and beyond.
spk05: Thanks, Orson. Perhaps best if I give a broader overview of the status and the accomplishments of QB to date. As we published, QB continued to have month-over-month improvement in performance and copper production over the last quarter. April was at 14,600 tons. May came in at 17,300. and June at 19,300 tons. And, you know, the operations design is robust, and no critical issues have been identified. Throughput, recovery, and head grades are, of course, the three factors that drive copper production. And we have continued to make excellent progress in throughput. And over the last while, we have run between 90 to 95 percent of design rates. So, very confident of reaching full rates here over the next coming months. And focus here is really on stable operations with improved online time. On recovery, we are managing through higher amounts of plays that end up transitioning between the supergene and hypo gene mineralization. And we are making good progress. And this is being done with selecting different reagents, fine tuning the dosing, and of course, modifying some other operating parameters. And as a result, we are a few points behind on recovery. But with the adjustments and more stable operations, which also contribute to recovery issues, we expect to hit target rates in the months ahead. Talking about the head feed grade that you mentioned with this geotech issue, generally the head feed grade is very consistent with our block model, and that is really the key point and very reassuring. In the second half, we do expect to have more than planned feed head grades. This temporary access issues was in access to the higher grade areas in the mine sequence as we had planned originally. And this localized geotechnical issue is for the access ramp to these areas. And what we are doing is we're working through reorienting the access ramp a little bit and additional, you know, support and buttressing. And that still takes several months. And we expect to complete this work late this year. and have full access by early next year. And actually in December, we expect to have access to this. The implications for, you know, 25, 26 is very minimal. Some of this higher grade will bleed into 25 and will change the mind sequence, and the balance of it will feed into 2026 as well. So overall, really not a meaningful impact into 25, 26, but a meaningful impact in Q3 in particular and Q4 as well.
spk03: Thanks, Shezai. Can you actually give us a rough guide for the copper grade in H2?
spk15: Yeah, we'll follow up with that with, you know, Fraser will follow up with some of those details, you know, maybe offline.
spk01: The next question is from Lucas Pikes with B-Rally Securities. Please go ahead.
spk00: Thank you very much, operator. Good morning, everyone. My first question is on slide 22, where you show your near-term growth project, and I'm sure you're putting them into a funnel, and I wondered in which order would the projects kind of come out of the funnel, and what are the key attributes you're screening for as you decide the ranking? Thank you very much.
spk02: Morning, Lucas, and thanks very much for that question. Yes, I mean, we are managing this as a portfolio. These projects all have different risk return characteristics, as you would expect. Of course, with QB and Highland Valley, you know, these are both brownfield expansions, and at QB in particular, there's a process there of optimization of the existing operation, the bottlenecking of that operation, and then a potential expansion of that Zafranile and San Nicolas, of course, are greenfield projects, both in jurisdictions where we don't currently operate. We have good experience with Peru, of course, through Antamina and at San Nicolas, bringing Agnico Eagle into that joint venture with their experience in Mexico significantly de-risks our entry there. So we evaluate all of these projects. We're progressing them in parallel through the completion of studies, through engineering, and through the application for permits. We will evaluate the economics of each of these projects against the relative risk and make those decisions accordingly. The one project where, of course, we do have particular timing considerations is the Highland Valley Mine-like extension. The current mine comes to end of life there around 2028, and we would like to see continuity of operations through the extension. So that's one that we very much expect to take forward to sanction next year, 2025. With Zafran Al and San Nicolas, as I said, of course, it will be dependent on the outcome of those studies and engineering. But in the case of Zafran Al, as you know, we already have a permit And that's one, again, that we have some confidence we'll be ready for sanctions within the second half of 2025. So, you know, it's great to have a portfolio like this so we can think about the balance of risk and reward associated with each of these opportunities. And as I said, we continue to work very hard to progress all of these opportunities in parallel today.
spk00: Thank you. Thank you very much. And a quick clarification question for slide seven and the higher level question as well. The capital requirements of 1 to 1.2 billion, I believe that's Canadian, in sustaining capital and capitalized stripping, I assume that would be too low for 2025 because there's always some spending on development capex. So if you kind of were to fully bake the capital requirements spending for 2025? What would be a reasonable zip code? And then the higher level question is that from this side of the border, it appeared that the approval of the EBR sale was somewhat begrudging. And I wondered if you could maybe speak on the industry's reaction and general appetite to invest in Canada and if this could have any any impact on future interest in tech. Thank you very much for your perspective on that.
spk02: Thanks, Lucas. You've managed to sneak in a couple of questions there. Look, on the first one, the $1 to $1.2 billion is very much within our expectations for sustaining capital and capitalized stripping for the years ahead. With the development work that we're doing on the projects that we just discussed, of course, we are incurring spend on studies, on engineering, and on permitting processes. This year, that's amounting to around $500 million in aggregate. And, of course, projects, when they're in the advanced stages of feasibility study and engineering, it tends to be where the highest pre-execution spend occurs. So while those projects remain in this phase, you could expect to see us spending at a similar rate through 2025 is probably the best way to articulate that at the moment. In terms of the Canadian government, we don't see any changes there from our perspective. There's nothing in there that prevents us from executing this organic project portfolio, which of course is the key element of our strategy for tech. We continue to invest both within Canada and outside of Canada, as you see here, through commitments in Chile and also the potential for major investments in Peru and Mexico. And I think, you know, the execution of that strategy and our focus on creating, you know, value for all shareholders remains at the front and center of what we do. So we don't see any immediate impacts of anything we've heard lately from the government here in Canada.
spk01: The next question is from Jackie Prusilowski with BMO Capital Markets. Please go ahead. Thanks very much.
spk11: My first question, I think I'd like to follow up on Aura's question about the geotechnical issues at QE2. Understand that you have just given us like pretty rough guidance on the impact. I mean, first of all, just a comment. I would also like if you could follow up with me on those grade profiles for a second half as well. My question is, do you expect this geotechnical issue is anything serious, faulting or anything that could impact mining operations going forward? Thanks.
spk02: I'll pass that back to Shehzad again. The high-level answer is no, but I'll let Shehzad provide a bit more color.
spk05: Jackie, this instability has been a known instability, so it didn't come out of the blue. It just was a bit deeper in than what we had planned. And, you know, as we are operating around that with blasting, we are taking extra precaution to make sure that we do buttress it right and reorient it for the longer term. So really normal operations, these things fine. And, you know, it's early in the mine plan. And if it was an advanced and mature mine, we would have other phases to be able to address this. These are not abnormal instabilities that we have in place.
spk11: I appreciate that. Thanks for that. And as a follow-up, second question, maybe this one's for Crystal. On the share buyback plan, I understand you've got sort of two plans on the go right now, the $500 million that was approved in January and then the new $2.75 billion plan. Can you give us some color on when you expect the $500 million buyback to be completed? Should we assume that's completed in the third quarter and then the new buyback starts in the fourth quarter? And over which period do you expect to do that $2.75 billion? Is that like a multi-year program? Thanks.
spk14: Thanks, Jackie. Welcome back. Nice to hear from you. Yeah, good questions. I think just in relation to the To the buyback, we'll be back obviously executing on the $500 million. I'd expect us to close that in the third quarter, obviously subject to valuation considerations, which are always what drives us when we're considering our buyback approach. In regards to the $2.75 billion, we're targeting 12 to 24 months. to complete that, but again, depends on valuation and market conditions. So I think it's probably sooner than the fourth quarter in terms of us getting into starting to buy on that. And then obviously we have to go through the ordinary course regulatory approval to renew our NCIB, which happens at the end of October.
spk02: So I think, Jackie, just to add to that, don't need to think of those really as two separate authorizations anymore. That is the total capital that we have committed to buying back our shares, and we'll undertake that on a continuous basis.
spk01: The next question is from Liam Fitzpatrick with Deutsche Bank. Please go ahead.
spk17: Good morning, everyone. First question is just on the independent review that's been completed now regarding the QB project. Can you just share some of the key findings from that and how that's going to benefit project execution going forward? And do you think you've now got the right people in place across the organization to begin this next phase of growth that you're now talking about?
spk02: Yeah, thanks very much for that, Liam. I'll just focus on the second question. The answer is yes, but we still will continue to build more depth and bench strength in the project team here, of course, given the slate of activity we have ahead of us. We're going to need world-class project managers. We have some of those today assigned to these projects, but we'll need more of them to execute the growth strategy going forward. But, you know, we're also building out other areas of the team that support those project managers. So we have world-class people now assigned to the projects in the near term, but we'll continue to build that bench going forward. Talking of world-class people, I'm going to hand you on to our head of project, Carla Mills, who will talk a little bit about the results of the QV review and how we're applying those in your area.
spk13: Sure. Thank you, Jonathan. I think it's important to start with the fact that from the outset, we knew that QB2 was a complex and challenging project, especially given the altitude and scale of the project. Along with those factors, the project review has highlighted additional areas for improvement and learning, and we are taking them forward in our project execution. In a number of cases, it validated learnings we'd already identified and have already been actioning over the last several months. to offer maybe a few examples, highlights from our findings. One is the need for increased geotechnical drilling. This impacted construction at the port, the tailings management facility, and the pipeline. Also being more conservative in our assumptions around things like labor productivity estimates and inflationary pressures, which of course were exacerbated by COVID as supply chain globally became strained. And of course, enhancing oversight from our tech owners team when we switch to a time and materials execution basis. We're taking a number of steps to ensure we are embedding all of the learnings and the best practices for our projects going forward. This includes what Jonathan's already highlighted. We do continue to build out our project teams with additional capacity and expertise. Tech's project team continues to grow, and we are, in fact, attracting more and more world-class talent that are really excited to work in and on our growth strategy. We're also upgrading our project management system. This is to better identify trends and risks, to proactively analyze and interpret information, boost our efficiencies. This will lead to more informed and faster decisions. And we're enhancing our project readiness and assurance practices in areas specifically around engineering design and capital cost estimates. I think collectively the improvement opportunities identified through this review will be baked into our projects moving forward and contribute to strengthening execution as we advance our copper growth strategy.
spk15: Okay. Thank you. That was – thank you for the detail there.
spk17: Just as a quick follow-up on the B bottlenecking at QB, can you just remind us what additional permits you may need to get before you can progress with that?
spk02: Yeah, again, I'll ask Shazad just to talk to sort of the three phases we see going forward here and the associated permitting strategies that will be required.
spk05: So, you know, Jonathan mentioned we have the three phases of optimization, of deep bottlenecking, and then we will consider later after that a more robust expansion project. For the optimization, we do not expect to need any permits. That would be within our permitted ranges. And we're talking 5% to 15% throughput increase, which would include things like increasing redundancies to get better online times, and some minor modifications of some equipment that might need a little bit more throughput capacity. When we come to the deep water lagging study, we will need to make some more meaningful modifications and some additional equipment. And that is things like repowering conveyors and having bigger pumps as well to be able to handle higher capacities, whether it be of material, flows, or conveying systems. And this, of course, will be very low capital intensity because most of the major infrastructure, like desal, pipelines, transmission, would not need any increases. And for that, we will need a permit, and we are developing that permit right now and expect to submit it before the end of the year. And then once we receive that permit, we would continue with making those changes. and achieve the higher throughput rates.
spk15: And that, for that, we're looking at somewhere between 10 to 15 percent increase, further increase. The next question is from with Wolf Research.
spk01: Please go ahead.
spk12: Yeah, hey, good morning. Thanks for the detail. I wanted to clarify, please, on the guided $3 to $3.6 billion U.S. for copper growth. What exactly is in that? Is that the San Nick and Safranol and Highland Valley Extension? And does that already include the revisiting of the total capital cost you had told us you were going to conduct? And then I guess along those same lines, when are we going to get updated costs, both on an operating basis and capital costs? Thanks.
spk02: Yeah, thanks, Tim. Essentially, that range, it does capture the projects that you mentioned. There's some allowance in there for QB, some of the work that Shehzad was just discussing as well. You know, they are our best estimates, I would say, at the moment, and I don't use estimates in the rigor of a project's organization, but our best understanding of the forward capital costs associated with those projects in aggregate Our attributable share, of course, taking account for the joint ventures that we have or partners that we have in these projects. Those capital costs will be finalized through the work we do in studies and engineering, of course, when we get to those definitive estimates. But we've done this with a view forward as to our best understanding today as to where those costs are likely to land.
spk12: Okay, so thank you for that. And then I guess follow-up is when can we expect the further detail on the, you know, adjusted go-forward cost of production? And also, can you remind us what additional volumes and when you would expect as a result of those investments? Thanks again.
spk14: Yeah, thanks, Timna. I think you were just asking, you kind of mixed up maybe operating capital, so maybe can you just clarify whether you're referring to an update on operating costs or capital costs?
spk12: I was asking for all of the above, so sorry for the confusion.
spk14: Oh, it's okay. So, like, as part of our normal process, we'll provide our guidance update in January, like we've done in recent years, and that will reflect our update in January. Wellcat, CapEx, and OpEx for 2025, including a view on QBs, the cost once operations are ramped up at the end of the year. In regard to capital, development capital updates to what Jonathan noted already, where we've provided that range based on the best information we have available as of today. So the timing of that will depend on when the engineering and study work is completed.
spk15: The next question is from Carlos de Alba with Morgan Stanley. Please go ahead. Carlos de Alba with Morgan Stanley. Your line is open. Hi. Hi. Hello. Good morning. Can you hear me now? Yes.
spk10: Great. Sorry, I was on mute. Yeah, maybe a follow-up on the CAPEX discussion. Do you have already a broad ballpark range of the CAPEX per project? The four maybe that we have been discussing, QB expansion, Safran Alpha, Ecolab, and ABC Lifeline Extensions.
spk02: Well, I mean, the answer is yes, of course, that we use ranges associated with each of those projects to provide the range of aggregate guidance in terms of what we expect to spend over the years ahead. As I said, we need to complete the work on studies, engineering, and estimates, et cetera, to have more confidence in those ranges. But in aggregate, that is the best understanding of the capital profile for that.
spk10: Okay. Yeah, we're looking forward to the breakdown when you're ready to provide that. And then just on San Nicolas, have you received any confirmation or indication that this project, if you decide to go ahead, would be able to be built and brought on given the potential constitutional reform in the country that may ban open-pit mining? So basically the question is, yeah, what we are not sure is if the ban would be on new operating concessions or, but those that already have exploration permit and are under development in a way would be okay.
spk02: Yeah, look, you know, we acknowledge the uncertainty, Carlos, with respect to San Nicolas and that permit. Our experience to date is that permit process continues to proceed as planned. We got over a significant milestone recently with respect to that process. So indications at that level are good. You know, we'll have to see how things evolve more broadly in terms of legislation. including changes in the judiciary, perhaps, in the country. So there's a few things at play there. But from what we can see on the ground today and our experience opposite the regulator, today's positive. So we continue to remain very engaged in that permitting process. We continue to work on closing out the studies and bottoming out the capital estimates associated with that. And we're hopeful we can bring that to a point where we achieve the permits and take it forward with the sanctions.
spk15: The next question is from Bill Peterson with J.P.
spk01: Morgan. Please go ahead.
spk09: Hi. Good morning, and thanks for taking the questions. I want to come back to QB2. So on this access issue, I guess can you provide a little bit of extra color on the timeframe issue? Did this have any impact, I guess, quarter to date? And trying to think about the production rates through the remainder of the year, should we think of it actually taking a slight step down in the third quarter before I guess, improving in the fourth quarter to what would appear to be, I think you said earlier, you hope to be at full production, so around 25 kilotons. Just trying to get a sense for the trajectory here.
spk02: Yeah, just at a high level, we expect to continue to see the quarter-over-quarter improvement continue through this year. And by the end of the year, we expect to be producing at full rates. But I'll, again, answer Shazad to give a little bit more detail on the underlying conditions associated with the geotechnical fault with grey and with the transitionals?
spk05: Like I mentioned before, this was a known area of instability and it was late in the quarter when we understood the implications for building a different access rather than just buttressing or reorienting the access and that would prevent access to these higher grade areas. And so really it's an H2 issue mostly. And as Jonathan mentioned, it's not to take a step down. It's to continue the improvements that we've had and throughput, continue the throughput rates, continue to improve on grade, and just compared to plan to have slightly lower grades.
spk09: Okay, thanks for that. So, actually, to change the subject, on zinc, just trying to get a sense of what you're seeing in the zinc market, considering where TCRCs are, global smelter output, which appears to actually be contracting, and what are you assuming for supply-to-man balance is in the back half of the year and into next year?
spk02: Right, thanks for that question, Bill. I'll hand you over to Ian Anderson, our Chief Commercial Officer.
spk06: Hi, Bill. Thank you for the question. So, what we're seeing currently is zinc market is definitely in deficit. And the reason for that is, of course, you saw not only the mine shutdowns that occurred as a result of lower zinc pricing last year, but also some disruptions this year. There have been, you know, an initial start, for example, at Cappucci. We're expecting over the medium term a restart of TAR, for example. And, of course, Ozernoi is also predicted, but really those don't come on this year. And so the reflecting that you're seeing in the very low PCs for zinc as a result of that deficit. And just an interesting fact there, you know, concentrate imports in China, for example, are down significantly this year. And that is attributed to the lack of available feed. So we are seeing, of course, support for pricing in the zinc market. We're seeing conditions in finished metal really coming along and stable premiums there. And so we do anticipate that it will remain in slight deficit for this year. and are expecting the same thing for the first half of 2025 as well.
spk15: Thanks for the question.
spk01: And the last question we have time for today is from Brian MacArthur with Raymond James. Your line is open.
spk04: Thank you, and thank you for taking my questions. My first question just, I appreciate all the guidance for EBITDA and the ongoing CAPEX, but as I think about the jurisdictions you're getting cash flow and earnings from in the future, can you give any guidance for one, A, tax rates going forward, and B, I guess, cash tax rates as I try and figure out free cash flow, which is kind of the missing part as taxes in this equation?
spk15: I'll give it to Crystal.
spk14: Thanks, Brian, for the question. I think 2024 is going to be a bit of an anomalous We expect our overall effective tax rate on a continuing operations basis to be in that 41% to 43% range. That obviously excludes the impact of the sales, full business, and the anatomy dividend. Beyond 2024, we still continue to think that 41% to 43% is a reasonable guideline. where we're profitable across all our business units and we have, you know, aggregate operating margins that are relatively large in comparison to corporate costs and finance costs. I think that, you know, it doesn't necessarily build in our growth projects and there'll be some work that we have to do in that regard. But I think I would just encourage you to, you know, continue to use 41 to 43 and we can provide more guidance when we...
spk04: uh when we have it and and obviously fraser can provide more and team can provide more support offline on the modeling aspect great that's very helpful and maybe if i just ask one more and maybe maybe it's for robin obviously you highlight the whole business did pretty well this quarter at your runways with two maintenance big maintenance shutdowns can you maybe just go through what happened and maybe a second question um are the operations down the state that they'll run at the 26 million tons uh
spk02: a year and i guess maybe a final question i guess with the cold being business being sold uh what robin's plans are next yeah uh thanks brian i'll hand you over to robin in a moment uh we won't give any forward looking guidance uh for the cold businesses you uh as you might expect um i'm just going to quickly make a comment on on robin uh robin will be retiring from tech uh in the coming months uh robin's been with us for 36 years most recently as our President of Coal. He has quite literally delivered us truckloads of cash over many years through his role. And in addition to his leadership of the coal business, he's had a significant impact across all of tech, particularly in respect of his safety leadership and the safety programs that he's established here over many years. So we just want to recognize and thank Robin for his incredible contributions to the company over many, many years. And with that, Robin, I'll hand it over to you to discuss the quarter.
spk08: Thanks, Jonathan. And thanks for your question. I didn't expect one this round. I think what I'd say about the quarter is the coal business is operating as it was prepared to operate over many years. And we had a strong quarter because all the operations combined are in extraordinary good shape right now. We're seeing the best safety performance we've ever seen in history. We've got our water treatment plants are all performing well. All the plants ran really well through the quarter, and this is really business as usual from my perspective. So I'm proud of the team that got us to the point that we are today, and it's up to the new owners now to take it forward. But the business is in exceptionally good shape, and that was demonstrated in that quarter.
spk04: Great. Thanks very much, Jonathan. Thank you, Robin. Good luck, Robin.
spk15: Thank you.
spk02: Thank you, Brian. And thank you to everyone for joining us today, and thank you for all the questions. Just a note, we are planning to hold the Strategy Day in Vancouver on November the 5th, followed by a site visit to Highland Valley the following day. So please watch out for a save-the-date notice, which we expect to send out shortly. As ever, please reach out to Fraser and the IR team if you have any further questions. And with that, please enjoy the rest of your day.
spk01: 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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