Teck Resources Ltd

Ladies and gentlemen, thank you for standing by. Welcome to TEC's third 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 one on your touchtone phone. Should anyone need assistance during the conference call, they may signal an operator by pressing star then zero. This conference call is being recorded on Thursday, October 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.

Thanks, Gaylene. Good morning, everyone, and thank you for joining us for Tech's third quarter 2024 conference call. Please note, today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Tech does not assume the obligation to update any forward-looking statements. Please refer to slide two for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call. Explanations and reconciliations regarding these measures can be found in our MD&A and the latest press release on our website. Turning to the agenda on slide three, Jonathan Price, our CDO, will begin today's call with an overview of our third quarter results. Crystal Presti, our CFO, will follow with additional call around the quarter. Then Jonathan will conclude today's session with closing remarks followed by a Q&A session. With that, over to you, Jonathan. Thank you, Fraser, and good morning, everyone.

Starting on slide five, our shift to a pure clay energy transition metals company was marked by the close of the sale of our remaining interest in the steelmaking coal business. on July 11th. At that time, we received U.S. $7.3 billion in cash and announced our planned use of proceeds, including the largest cash return to shareholders in the company's history. Through the remainder of the third quarter, we progressed deployment of those proceeds as we returned $720 million to shareholders through dividends and share buybacks in the quarter and over $1.3 billion in returns to shareholders year-to-date as of yesterday. reduced debt by US $1.5 billion, putting us in a net cash position of $1.8 billion as of September 30th, and retained funding for our value-accreted near-term projects in preparation for our next phase of copper growth. We also achieved several operational highlights in the quarter. We continue to grow our copper production and set another consecutive record quarter copper production as QB continues to ramp up. and our operational focus resulted in higher zinc and concentrate production of Red Dog compared to the same period last year. We are now nearing the final stages of the QB ramp-up. We completed the QB2 project in the quarter and demobilized the construction workforce. Substantially, all our claims were closed out and accrued for within our project capital guidance range of U.S. $8.6 to $8.8 billion. At the same time, we continue to progress our well-funded, capital-efficient copper growth portfolio, moving our near-term projects towards potential sanction in 2025. Overall, we made significant progress in the delivery of our value-driven strategy. On to slide six, we continue our focus on safety, health, and sustainability leadership. We are deeply saddened by an employee fatality in Tanzania during container assembly in the warehouse area on July 24th. In response, the joint venture management team at Antamina, supported by the joint venture partners, including tech, conducted a thorough investigation to identify root causes and implement any required actions, and to share learnings across the industry to help prevent future incidents. Over the third quarter, our high potential incident frequency rate remained low at 0.10, which is a 33% reduction from the same period last year. We continue to progress the rollout of mental health first aid training for frontline leaders across our operations towards our targets of 50% completion by year end and full completion by the end of next year. And earlier this month, we were recognized on the Forbes list of the world's best employers 2024. It's meaningful as it's an employee driven ranking of multinational companies and institutions from over 50 countries worldwide. Turning now to an update on the ramp-up of QB operations on slide 7. Proper production at QB improved quarter-over-quarter to 52,500 tonnes from 51,300 tonnes in Q2. However, production was impacted by lower-grade ore mines as expected, following the geotechnical issues that restricted our access to higher-grade materials. If the grade has been consistent with prior quarters at 0.58%, and based on the throughput and recovery that we achieved, our production would have been 56,000 tons. The localized geotechnical issue that we had identified and disclosed last quarter has now been resolved with controls in place, and we're continuing to advance the mine plan. We expect higher grades in the fourth quarter, and going forward, normal grade variability is expected within any given period. Mill throughput rates increased quarter over quarter, confirming the robustness of our plant design. As you can see in the chart on the left, throughput has been ramping up steadily quarter over quarter towards nameplate capacity and is currently near design throughput rates. We expect to achieve design throughput rates by the end of this year. We've also seen evidence of our ability to operate above design throughput rates. We're working hard on mill optimization to push performance past mainplate and on our plans for de-bottlemaking. Recoveries also continue to improve, as shown in the chart on the right, with an increased quarter-over-quarter and increasing stability. However, our monthly copper production did decline marginally in September, primarily the result of additional planned and unplanned maintenance. We've proactively taken downtime in readiness for planned test work on the grinding and flotation circuits to ensure improved continuity during the test period. The tests were successful, and we've seen improved grind size coupled with selected reagents that enhance processing of ore in the transition zone between the supergene and hypergene mineralization, which has higher clay content. As a result, we expect improved recovery going forward. We also have unplanned downtime on a thickener and premature failure of the mill feed conveyor, reducing our son's mill. Our focus remains on improving recovery and increasing online time. We expect to see progress following the completion of the test work, along with minor equipment modifications to improve reliability scheduled for the first half of 2025. This is expected to gradually improve molybdenum recovery, copper plant stability, and equipment reliability through the first half of 2025. Overall, as we close out the QB project and look towards completing the ramp-up of QB operations to design throughput rates, we expect to generate significant cash flows in 2025 and beyond. We have updated certain guidance items for 2024, which are summarized on slide 8. We have improved our net cash unit cost guidance range by $0.10 per pound to $0.45 to $0.55 per pound, reflecting the results of strong operational performance for Red Dog. Fortunately, this reduction was driven by improved operating costs, which allowed us to also improve our total cash unit costs for zinc by $0.05 per pound to $0.65 to $0.75 per pound. There is no change to Red Dog production guide. We've lowered our refined zinc guidance for trial operations to 240,000 to 250,000 tons due to a localized fire at one of the units in the electrolytic zinc plant in late September. We are looking at operating the other sections in a manner that would allow us to recover some of the production loss. However, this evaluation is still underway. In copper, our total production guidance range was lowered and narrowed. with the bottom end of the range reduced by 15,000 tonnes due to lower expected production from Highland Valley. Our revised guidance is now 420,000 to 455,000 tonnes from 435,000 to 500,000 tonnes previously. Production guidance for Antemina, Kamla and Okoio are both unchanged. At QB, reflecting the slower ramp-up this year, we have narrowed our QB production guidance to 200,000 to 210,000 tons for 2024 from 200 to 235,000 tons. We've revised our 2025 production guidance around QB to 240 to 280,000 tons from 280 to 310,000 tons, reflecting planned activities to improve copper recovery and equipment reliability scheduled to run through the first half of 2025. Bullion production at Highland Valley is now expected to be between 97,000 to 105,000 tonnes, from 112,000 to 125,000 tonnes, due to the delay in accessing the higher-grade LawnX pit in Q3. From Lindenham, our production guidance is reduced to 3,000 to 4,000 tonnes, from 4.3 to 5.5 thousand tonnes, in line with the changes to our copper production guidance. We have reduced our QB molybdenum production guidance to 0.8 to 1.2 thousand tons for 2024, and to 4 to 5.5 thousand tons for 2025, from 1.8 to 2.4 thousand tons, and 5 to 6.4 thousand tons, respectively. Despite the lower total moly in the production guidance, our total copper unit cost guidance is unchanged, demonstrating our focus on managing costs across our operation. Turning to slide 9, as we continue to progress on the ESM copper projects for potential sanctioning in 2025, all subject to permitting and other works. At QB, the ramp-up continues, and we are progressing the work on defining ESM opportunities for optimization, debottlenecking, and de-insisting assets to achieve improved throughput and recovery. Our revised environmental assessment and permit application for the mine life extension was accepted in July, and we continue to progress through the permitting process. We expect substantial completion of engineering and project execution planning in Q2 2025, and the project could be ready for a sanctioned decision at that time permits are received. The Joint Venture of San Nicolas continues the permit application process. and engagement with governments and stakeholders is ongoing. Project function decision is anticipated to follow completion of the feasibility study and receipt of necessary permits in the second half of 2025. Of course, we are closely monitoring the evolving political situation in Mexico. And that's that for now. Whilst we have received the main environmental permit required, we are being disciplined in advancing works and progressing detailed engineering. which gives more clarity on construction and associated capital before we sanction the project. We continue with the construction permit application development through Q3 2025. The project could be ready for sanctioning in late 2025, following receipt of construction permits and completion of detailed engineering. We look forward to creating a digital value for our shareholders through these low capital intensities, high return in copper projects. I'll now hand over the call to Crystal to provide further details on our third quarter results.

Thanks, Jonathan. Good morning, everyone. Starting on slide 11 with our financial performance in the third quarter of 2024. As Jonathan noted, we began to deploy the proceeds received from the sale of our remaining interest in the steelmaking full business to shareholders through significant cash returns and by reducing debt and strengthening our balance sheet. We returned a total of $720 million to shareholders in the quarter, including $322 million in dividends and $398 million in share buybacks. In total, we have returned over $1.3 billion to shareholders year-to-date as of yesterday, and we continue to execute our previously announced share buyback program of $3.25 billion. As a result of the completion of the sale of our remaining interest in the steelmaking coal business on July 11th, EVR results have been presented as discontinued operations for all periods reported in our Q3 financial statements and MD&A. We had strong financial performance in the quarter with our adjusted EBITDA more than doubling and our adjusted EPS nearly quadrupling compared to the same period in the previous year due to strong copper and zinc prices and increased copper sales volumes, reflecting the benefit of the ramp-up of QB operations. In Q3, we had higher finance expense and appreciation and amortization expense compared to the same period last year, as most of the QB assets were considered available for use at the end of 2023 and depreciation started in 2024. And we are no longer capitalizing interest on the QBQ project. Our third quarter financial results were also impacted by a non-cash after-tax impairment charge of $828 million on our trail operations. As required under IFRS, we regularly assess whether impairment indicators are present and impairment testing is required. The impairment of trail is a result of the challenging environment for treatment charges due to a global of zinc concentrate. Continued operating losses combined with the recent fire in the electrolytic zinc plant, which is expected to affect fourth quarter operations. Importantly, we remain committed to our trail operations as a core part of our strategy of providing critical minerals particularly given its strong integration with Red Dog. Trail remains an important asset in our portfolio, and we remain highly focused on improving its profitability and cash generation through a range of initiatives that are currently being deployed. Overall, excluding the impairment charge, we saw a significant improvement in our financial performance in the third quarter compared with the same period last year. Slide 12 summarizes the key drivers of our financial performance in the third quarter. The increase in adjusted EBITDA in a quarter compared to the same period last year was primarily driven by strong copper and zinc pricing as well as higher copper sales volumes. Operating costs increased due to the inclusion of QB operating costs this year. In Q3 last year, QB costs were generally included in capitalized ramp-up costs. We continue to focus on managing our controllable costs across our business. Now looking at each of our reporting segments in greater detail and starting with copper on slide 13. Our gross profit before depreciation and amortization from our copper segment more than doubled compared to the same period last year, to $604 million as we realized the benefit of QB ramping up. The increase was driven by higher sales volumes, higher prices, and an increase in byproduct credits, and partially offset by the inclusion of QB operating costs this year. We had another consecutive record quarter of copper production with increased production across all of our operations. QB ramp-up continues to support increased quarterly copper production. Higher copper production at Antonino was driven by increased copper-only ore, as expected in the mine plan, as well as higher mill recoveries. Water availability at Carmen de Antoyo improved, resulting in higher mill throughput and production. And while Highland Valley's production also increased, it was lower than expected due to delays in accessing the Lornax pit, which has higher grades. The delay was attributable to lower haul truck availability and challenges with labor availability and the autonomous systems of new haul trucks. This has been largely resolved, and we expect to process more Lornex ore in the fourth quarter. Our cost of sales was higher year over year, as expected, and reflects the ramp-up of QB and depreciation of its operating assets. Excluding QB, our net cash unit costs remain the same as in Q3 last year, at US$1.87 per pound. As Jonathan outlined, we have updated our annual copper production guidance to 420 to 455,000 tons from 435 to 500,000 tons, and our total molybdenum production guidance to 3.0 to 4.0,000 tons from 4.3 to 5.5,000 tons. Despite the reduction in our annual copper and molybdenum production guidance, our copper net cash unit cost guidance remains unchanged. Turning now to our zinc segment on slide 14. Overall, our gross profit before appreciation and amortization from our zinc segment was $358 million, an increase of 49% in the quarter compared to the same quarter last year, reflecting higher zinc prices and substantially higher silver and lead byproduct revenues, as well as lower treatment charges. Red Dog had another very strong quarter of operating performance. Higher zinc and lead production was driven by higher mill throughput, reflecting our operational focus to improve mill availability and minimize unplanned maintenance. Zinc sales volumes were strong and in line with our guidance despite difficult weather conditions. In September, we achieved a monthly record for concentrate loaded onto vessels, reflecting the close integration between our operations and commercial teams. The shipping season has continued into the fourth quarter with shipments dependent upon weather conditions, and we expect to complete our shipping season as planned. Our same net cash unit cost improved compared to the same period last year, reflecting strong operating performance, lower smelter processing charges, and higher silver and lead byproduct credits. At trail operations, while we did record an impairment in the third quarter, our new KISSET boiler operated well and achieved near-record online time and throughput. However, our refined zinc production was impacted by the fire in the electrolytic zinc plant in September. Looking forward, we expect zinc and concentrate sales from Red Dog of 155 to 185,000 tons in the fourth quarter, reflecting the normal seasonal pattern. For the full year, we've improved our full year guidance range for zinc net cash unit costs by $0.10 U.S. per pound to U.S. $0.45 to $0.55 per pound from U.S. $0.55 to $0.65 per pound. A portion of this reduction is driven by improved operating costs. As a result, we've also improved our zinc total cash unit cost guidance by 5 cents U.S. per pound to U.S. 65 to 75 cents per pound from U.S. 70 to 80 cents per pound. Our guidance for zinc and concentrate production is unchanged, and our guidance for refined zinc production was lowered to 240 to 250,000 tons from 275 to 290,000 tons, due to the fire in the electrolytic sink plant at Trail. Turning now to slide 15 and our resilient balance sheet. Since the close of the EBR transaction on July 11th, we've made significant progress in deployment of the transaction proceeds to the balance sheet and to shareholders. We've reduced our debt by US $1.5 billion to date, including a cash tender offer for US $1.4 billion of our outstanding turnover repayment of U.S. $120 million of short-term loans at Carmen de Anducoyo, and open market repurchases of an additional $9 million U.S. of terminals. Overall, we strengthened our balance sheet in the third quarter, and we are in a net cash position of $1.8 billion Canadian as of September 30th. Our finance income increased in the quarter due to interest earned on our higher cash balance, which is currently Canadian $7.8 billion. The quality of our balance sheet, along with confidence in our business outlook and a focus on lowering our financing costs, resulted in us reducing the size of our sustainability-linked revolving credit facility by $1 billion U.S. last week to U.S. $3.0 billion. In the quarter, we returned significant cash to shareholders through the payment of our regular base quarterly dividend of $0.125 per share and a supplemental dividend of $0.50 per share for a total of $322 million. and the purchase of 6.3 million Class B shares for 398 million under our normal course issuer bid. We have currently returned over 1.3 billion to shareholders year to date, including the purchase of 13.6 million Class B shares. This builds on our strong track record of shareholder returns, which total over $5 billion since 2019. With our resilient balance sheet, we are strongly positioned to execute on our growth strategy and create value for our shareholders. With that, I'll turn it back over to Jonathan.

Thanks, Crystal. To wrap up, starting with slide 17, as we shift to a pure-play energy transition metals company, we remain true to our purpose and values and guided by our capital allocation framework that balances growth with cash returns to shareholders. Our strategy is focused around four key pillars which drive our pursuit of responsible growth and value creation. On slide 18, we are delivering on our strategy. Completing the sale of EBR means that we now have a portfolio that is 100% energy transition metals. We continue to focus on driving operational performance. Our copper production continues to grow. We've closed out the QB2 project and are progressing towards the final stages of the ramp-up of QB operations as the key driver of our near-term copper growth. And our focus on operational performance enabled a reduction in our full-year guidance range for Zinc net cash unit costs. We continue to balance cash returns to shareholders with our highly competitive copper growth opportunities. So far this year, we've returned over $1.3 billion to shareholders and deployed $302 million towards advancing our portfolio of growth projects. And we significantly strengthened our resilient balance sheet in the third quarter, With the EVR sale proceeds, we've paid down $1.5 billion of debt, and we have a net cash position of $1.8 billion as of September 30th. To conclude with slide 19, as an energy transition metals company, our focus remains on creating value for our shareholders. We will drive strong operational and financial performance, embedded by our focus on core excellence. And we're pushing hard towards the final stages of the QB ramp-up. which would set us up for strong cash generation and financial performance. We are maintaining the balance between growth and shareholder returns. We continue to progress our record returns to shareholders, the $3.25 billion authorised by the Board this year. And with our resilient balance sheets, we are well positioned to continue to progress our well-funded, capital-efficient near-term copper projects for potential sanctions in 2025. Thank you. With that, operator, please open the line for questions.

Certainly. To join the question queue, please press star then one on your touchtone telephone. You'll hear a tone acknowledging your request. We ask that you please limit yourself to one question and one follow-up. If you're using a speakerphone, please pick up your handset before pressing any keys. If you wish to remove yourself from the question queue, you may press star then two. Our first question is from Oris Walkadow with Scotiabank. Please go ahead.

Hi, good morning. Question on QB2. So second consecutive quarter of guidance cuts here for 24. You've now cut 25 by 12%. I mean, at this point, what can you share? What gives you any confidence that these numbers are achievable in 25 years? just given all the cuts we've seen this year. And I'm curious also what you're anticipating in terms of that guidance range for 25. How much of that improvement over 24 is driven by throughput, first grades, first recoveries?

Yeah, morning, Lawrence. Thanks for the question. So just to start there with a bit of context around 2024 and the reduction to guidance, and then I'll go on to your question around 2025. As I said, the plant design at QB is robust, and we have continued to make very good progress on middle throughput, and you can see that improvement quarter over quarter. We do expect to be operating at design middle throughput rates by the end of 2024. The key for us here is to ensure that we achieve these design rates more consistently through maximizing our online time. On recovery, we expected some challenges in Q3 as we worked through higher amounts of clays in those transition wars between supergene and hypergene. Despite that, we did make some progress. through higher recovery rates quarter over quarter. And as I mentioned, we have completed testing of dosage and reagent mixes, which have shown both improved recoveries and better stability in the plant. But work will be ongoing in that regard, both through the fourth quarter of this year and into 2025. The other component, of course, aside from throughput and is grade, and we're seeing a good level of accuracy in the grade of material we mine versus what we expect in our plans. We have expected lower grades in Q3, as we said, and we do expect an improvement in grade into Q4. And as I mentioned, if all else had been equal, as in if we had the same grade in Q3 as we had in Q1 and Q2, and we've operated with the throughput and recoveries that we did in the third quarter, we would have produced 56,000 tons rather than 52. So grain being there as a big driver of lower production in Q3 relative to expectations. Also important to note, because we discussed this in the last quarter, that the geotechnical issue that we encountered is under control, and it gives us confidence to advance the mine plan. So we're happy with the progress we're making on throughput, recoveries are very much a work in progress with test work continuing to advance. And that feeds then into 2025. In 2025, some of the work that we're planning to do around recovery, around dosing, but also some of the work that has to be done on the plant will go through the first half of 2025. That will involve some additional downtime in 2025 to drive those improvements in the first half. But we do expect that to translate into much stronger and more consistent recovery performance through the balance of the year. You know, the throughputs, you know, we are very encouraged by that. We do see periods where we're operating above nameplate. And as I mentioned, that's all about driving more consistency in the uptime and online time associated with the plant. And again, there are some modifications that will be made to areas of the plant through the back end of this year, but also through the first half of 2025. So, you know, RS, we've looked very hard at all the operational performance drivers here. We believe that the 2025 guidance that we put forward here is, is very much achievable. But you'll note, you know, in the range that we've put around that with the 240 to 280 is relatively broad, and that's to reflect, you know, some level of ongoing uncertainty associated with an asset that is still in the ramp-up phase.

And just as a follow-up, in your presentation slide, page 7, you show design recoveries of 86% to 92%. Is that a revised life of mine assumption, or do you still think you can get to 91, 92 on a consistent basis?

Yeah, there's no revision there, Oris. That has been designed, and we still think that's achievable here. I'll have Overture start to talk about that in just a moment. But to say, you know, if we benchmark performance of the ramp-up of QB against other major ramp-ups that have occurred, We are bang in line with those ramp-up curves when it comes to throughput. Recovery is the area where, as I've mentioned, we have more work to do. But even so, we're not encountering some of the recovery issues that some other major projects have encountered over time. So, again, that's what gives us the confidence to continue to push higher. But I'll hand over to our Chief Operating Officer, Shazad, to give a bit more color on recovery specifically because that's a very important point.

Thanks, Jonathan. So we have achieved pretty decent recoveries when we, you know, with our typical ore types, but have struggled with some of the transition ores which have the higher plates. And, you know, I think our performance has been in the 83 to 84% over the last quarters, and we are seeing better numbers now. But the most important part is as we introduced the MOLLE circuit as well, that had some impact as well. And the test work that Jonathan mentioned has given us a good resolution on what reagents to use, and that is being implemented here in late October and November. And we will then fine tune that well into the first half of 2025. And, you know, the range that you mentioned of 86 to 92, It depends on what ore types are being fed. And we do expect some transition ores well into the first half of 2025. So we won't get to those numbers of 92% in the first half, and hence some of the impacts on the 2025 guidance. And, of course, the 86 to 92 is over a longer-term period, not in any quarter or any year. It's over the life of mine. So you'll see variability of that as well.

Thank you.

The next question is from Bryce Adams with CIBC. Please go ahead.

Thanks, all. I appreciate the presentation. I wanted to ask on San Nicolas and open pit mining in Mexico. Jonathan, I think you mentioned in the comments that you're monitoring the situation. Is there anything that you can add to that? Recently, it looks like the tone has shifted towards being more positive. Would you agree with that? And could the asset be reconsidered as an underground operation? Is that something that's been evaluated?

Bryce, thanks very much for the question. You know, as mentioned, we are still monitoring the situation in Mexico. I think it's fair to say there's still a level of uncertainty there, but I would agree with your assertion that the tone has moved to a slightly more positive position. or alternatively a slightly less negative position, depending on how you look at that. We've done a lot of work on what is the optimal path for development of this asset. I think your question is geared around trying to avoid the open cut issue. We still think that the open cut mine is going to deliver the best returns. associated with that asset. We continue on the permitting process on that basis, and we continue on our feasibility study and engineering work on that basis. And we are hopeful of a resolution for open-cap mining, particularly in the context of St. Nicholas in due course. But I think we have to be realistic and note that there is uncertainty in regards to that still in the environment today.

Okay, thanks. That's all for me. Appreciate that. And then the extra color on QB just in the last few minutes. Thank you. Thanks, Carlos.

The next question is from Carlos Galba with Morgan Stanley. Please go ahead.

Yeah, thank you very much. Good morning. Two questions, one on San Nicolas and another on QB. San Nicolas, maybe just a follow-up. Jonathan, can you remind us if you already have an open pit mining concession for the project, or do you have only an exploration license? What exactly do you have? Yesterday, one of the biggest local copper producers mentioned that for one of their projects, they are not worried about any changes in the legislation because they already have the concession. So I just wanted to understand exactly what do you have.

Yeah, we believe that we do have protection under the concession that we have costs associated with San Nicolas. Whether or not through this consideration around the future of open cap mining that converts into a permit for development is really the open question at present. So the extent to which there is a grandfathering of those prior rights into the current situation is Good engagement by the San Nicolas JV and also both partners, ourselves and Indico Eagle, with the Mexican authorities as we try to figure out the appropriate path forward here for the project.

All right, that makes total sense. And then on QV, how many days in September was the operation down for the maintenance that you mentioned in the release that was taken? And I think I heard You mentioned that in the first half of next year, there's going to be also some downtime. Can you maybe provide a little bit more color what months you have a sense of how many days in those months the operation will be down?

Yeah, I'll pass you to Shahzad on that. As you know, we've had a cadence of major shutdowns, if you like, every quarter. And then in addition to that, there have been some additional more opportunistic shutdowns that we've taken on specific areas of plant equipment. So, Shahzad, if maybe you can comment on September and then broadly speaking on next year.

Sure. Carlos, in September, we took an extra three days to do some of the work of belt changes and some of the liner changes that we needed to do ahead of the test work. And then also, as Jonathan mentioned, the pickner issues that we had where the mills were down, but they were running at limited rates because of water issues, recovery from the pickner. So it's not just a matter of downtime. It's some of the limitations as well. Those issues have been resolved. in the thickeners, and we continue to address issues. As an example, we found that our mills weren't having the life that we were expecting, so we went around, changed the design, changed the material, and those have been installed. Some of the belting itself did not last. We changed the material and the design of that. So these are the types of things that you encounter in a startup that we are addressing. And the Q1 downtime, the extra downtime, really is to address several other items that we have identified just to increase the design life of those components of the equipment. So no fatal flaw at all. It's just a matter of, you know, including the reliability of some of the components. So the Q1 numbers are a few percentage points below our target on availability, and then some in Q2 as well that forms the guidance for 2025. All right.

Okay. Thank you very much. I'll follow up with more questions later. Thank you.

Thanks, Charles.

The next question is from with Jeffrey. Please go ahead.

Thanks, Operator. Hi, it's Crystal Femina. Thank you all for taking my question, and thanks for the additional insight so far in the Q&A. Just had some follow-up on the QB ramp and how we should think about incremental costs and how that's going to flow through the P&L and the cash flow statement in 2025. So I think Jonathan, you said that Project CapEx is basically done, but with production guidance now for 2025 being lower, you talked about all the additional work that you need do to get to full capacity? When I hear work and mining, I think costs. So how do we think about the kind of the cost impact in 2025? And just also wanted to confirm, is Project CapEx now done? So is everything just kind of flowing through kind of asset level based operating expenses in CapEx? Or am I incorrect in you saying that earlier? Thank you.

Thanks for the questions there, Chris. So for the first part, yes, the Project CapEx is done. That U.S., 8.6 to 8.8, we've fallen in that range and have said, well, there are some claims outstanding that they've been accrued for and are captured in that range, and we've fully demobilized, so we consider the project to be done and in the rearview mirror now. To your point on some of the works we're talking about doing next year, I mean, these things are minor in the scheme of things and so small you're unlikely to see them at all going up in our costs. you know, this is essentially, you know, it's a form of preventative maintenance or minor improvement work that we'll be doing around the site. So don't see that as, you know, any significant additional capital or cost burden. And to your final point, yes, essentially with the project closed, all of these expenditures now will run through the operation, you know, of course, where there's capital being spent on On sustaining work, those things will be capitalized, but other operating costs in the normal course will run through the P&L. And I don't know, Crystal, if there's anything you wanted to add to that.

No, I think the only thing I guess I would say is we've reiterated our cost guidance for the copper business as well as for QB for 2024, despite seeing some reduction in our production guidance. I think that just really reiterates the point about our focus on on cost, and we're working to demobilize contractors, and we've seen some success in that as well.

Right. So, sorry. So, the 2025 reduction in production will be associated with an increase in cost, right? So, we should expect all else equal, your unit cost at QB will be higher for 2025 because your volumes are lower. At the very least, there is that additional kind of cost. Is that correct?

Yeah, well, we haven't guided yet, Chris, for 2025. Obviously, if you assume that operating costs are the same and you apply a lower production cost to that, then all else being equal to get a higher operating cost, of course, but we need to assess what those costs are for next year and we'll guide from there, of course.

And I guess the key, Jonathan, like you said, I mean, it's not like there's a lot of additional capex. It's a matter of ramping this thing up and, yeah, the operating costs might be a bit higher in the first half of the year, but there's nothing else that we have to really worry about. I guess the follow-up to that is you've talked in the past about kind of waiting until 2025 before sanctioning new projects, and I think part of the reason for that was you wanted to get QB2 up to full capacity. So to the extent that this is being delayed in terms of the ramp, does that push back timing on kind of sanctioning of other projects, or is it still possible we see some of those sanctioned projects come through in the second half of next year? Thank you.

Let me come to that in a second, Chris. I just Chris, was there anything else you wanted to say on the unit cost piece just to close that out?

Yeah, I mean, Chris, just to really confirm, we haven't put out our guidance for unit cost for 2025. I would expect them to be lower than 2024 because we had, you know, obviously factors with the ramp up with using alternative shipping arrangements. We've had lower MOLLE production, which has an impact on our net cash unit cost because we don't get the MOLLE credit. So those things we should see those resolve in 2025 and we'll put out our guidance as we normally do in January.

I understand. Thank you, Crystal. And then just on the project sanction, the remaining work we have to do on QB, as Shazad mentioned, is very much in the first half of next year as we look to optimize conditions, the circuit reagents, for better online time and improved recoveries. They're the two things we're focused on. We expect to have those done in the in the first half. Even if we achieve all of the permits on the timeline we're working to and complete our studies and have positive economics associated with the capital costs of these projects, we wouldn't be sanctioning anything before the second half of next year in any event. So we remain confident in sort of the full ramp up of QB in H1 and we'll look at we'll look at other projects. And I'm talking about the Greenfield projects, Chris, in the second half of the year. HVC, my life extension, being a brownfield, of course, is one that we will pursue as quickly as possible. But again, I think that runs into the business next year in any event.

Great. Thanks again. Good luck. Thanks, Chris.

The next question is from Liam Fitzpatrick with Deutsche Bank. Please go ahead.

Good morning, Jonathan. First one, just on production guidance, I wanted to clarify whether the update today updates for your other assets in terms of 2025 guidance, or will we be getting further revisions to those in November or January?

Yes, so the only updates we've made for 2025 are the ones we've communicated today. And of course, that just relates to QB, where For the issues we've identified, we understood clearly today that there would be a change to the prior guidance for next year. All other assets, as we work through the planning process and their associated guidance, will be updated in the normal course in January.

And then on the growth strategy, I mean, you're clearly not alone in terms of the the challenges in building and ramping up copper assets. Are you still convinced that going ahead with other green fields further down the line is the right strategy for tech?

We are, Liam, for a number of reasons. I mean, firstly, the projects that we have in the pipeline ahead of us are significantly smaller in scale, scope, and have much lower complexities than QB. We're also doing significantly more work around de-risking projects prior to sanction here in terms of the level of engineering that we'll be undertaking, for example, which will give us greater certainty as to capital spend schedule and execution pathways. And we believe that the low capital, relatively low capital intensity of these greenfield projects will offer very good returns to to our shareholders, and to us, certainly looks like a more attractive strategy than M&A, where a great deal of those The upside can be paid away through premiums to acquire assets. So we do think it's the right strategy. Of course, through going through something like QB in terms of the major construction and development effort there, and then the ramp-up process that we're working through here, we take significant learnings from that and build enormous organizational capability that we can take forward onto future projects. So we do think it's the right way forward. You know, these projects are not simple. They never are, but we're working very hard on building the capability, capacity, systems, processes inside the organization to underwrite success of future project development.

Thank you. And my last quick one, if I may, just on working capital. So there was a reasonably big build in Q3, about half a billion. Any color on or guidance on how and when that will unwind in the course ahead?

Yeah, thanks, Liam. Well, I mean, a lot of that, or some of that, at least, relates to QB. So, I'll pass over to Ian Anderson, our Chief Commercial Officer, who can explain a little bit about the production versus sales profile that we've seen at the operation.

Yeah, thank you very much for the question, Liam. It may be important just to say at the beginning that, of course, sales and production don't always match, and that could occur for, you know, a variety of reasons, including cutoffs for the reporting period, In-system and in-transit inventory, vessel scheduling, loading windows, things like that. So, for example, you know, we currently have just a couple of holds of cargo at the port. Those are scheduled to load imminently, and there's really no excess inventory there. In terms of the working capital question, though, the difference that you see in the disclosure is attributable to material that's at the mine and that's built up during the transition and the high-clay materials challenge that we refer to in disclosure. So this material is being transferred now to the filtration plant and to the port, and will go out for loading and for sales. And we expect a good portion of that to occur in Q4, and the remainder expected in Q1. So on that basis, the volumes will reconcile over time, but important just to come back to the fact that, of course, sales and production won't always match.

And then I, sorry, Liam, I just wanted to add, in relation to timing of sales, we did have very strong, both copper and zinc sales in the month of September, and so you see some of that built into the AR, which will be collected in a normal course as we go through the rest of the Q4. Okay.

Thank you. Thanks, Liam.

The next question is from Myles Elsop with UBS. Please go ahead.

Thanks for the opportunity. So, first of all, maybe on the buyback, could you Just give us a sense, are you maxing out with the buyback during Q3? Should we assume that a similar rate can be achieved in Q4 and during 2025, around $400 million a quarter?

I'll just say on that, Miles, we're not maxed out on that. We are being value-driven in the way we execute against that buyback. So at lower share prices, we're buying back more shares, and at higher share prices, we're We're buying back less. There's nothing at all to indicate that we can't continue running at the same rate in Q4 that we did in Q3. In fact, it would be somewhat accelerated because in July, due to a blackout period, we weren't buying back shares. So we would expect, again, all else being equal, to buy back more shares in Q4 than we did in Q3.

Okay, that makes sense. And then... Just going back to QB, I'm sorry, it's obviously the key question. Obviously, we've talked a bit about optimization and de-bottlenecking, which is not in the guidance, but some of that upside medium term. When will we get more clarity on this? When will you start building it into guidance? Is this going to be end of next year once you hit steady state, or how should we think about that? Should we start factoring in above 143,000 tons a day? Or should we just stick at 143 given the track record over recent quarters?

Yeah, good question, Miles. I mean, first off, I'll say that at our investor day a couple of weeks from now, we'll talk about this path forward for the QB asset in some more detail. I think for the time being, best to stick with the nameplate capacity because our focus is on proving that consistently by getting the online time where it needs to be. We have communicated that we think there is an opportunity to optimize above that, and then we talked about that optimization being up to 10% increase in throughput, which can be accommodated by our existing permits. Beyond that, any additional upside in the plant would really come through more of a debottlenecking approach, which would require some minor modifications and upgrading to certain plants and equipment, and that could potentially get over another 15%. of upside in terms of throughput. But the studies associated with that work are underway. We expect to have a much better line of sight into the path forward by the end of the year. But we will communicate more information and talk about this in some more detail in a couple of weeks' time in the investor day.

Okay, thanks.

The next question is from Lucas Pipes with B Reilly Securities. Please go ahead.

Thank you very much, operator. Thank you very much for taking my question. And Jonathan, when you have your site tour at Highland Valley on November 5th and still have labor needs, I might be tempted to fill out a job application. So please remind me of that. But all joking aside, I wanted to touch on Trail for a moment. You mentioned a range of initiatives that you're looking at to improve the operational stability at that asset. What will it take, capex-wise, time-wise, to improve the performance there?

Thank you. We were just thinking of processing your job application there, and we missed the asset you were referring to. Could you just repeat that, please?

That is a trail.

Trail. Okay, thank you for that. Yeah, we are, and we've seen a recent improvement in performance at Trail, absolutely. We've brought the Kivset boiler back online. That's performing very well, and we are looking at cost reduction approaches there to further improve. But I'll just get Shehzad to give you a little bit more color on some of the work that we're doing at Trail.

So, Lucas, you know, we've made some recent leadership changes there as well, and with a renewed focus on cash generation, as Crystal mentioned earlier, both through maximizing, you know, product margins and cost reductions, and particularly in the maintenance and non-routine work area. We are going through a lot of metallurgical work as well in order to improve recoveries from the residues, and we're really good success right now. That will help us to be able to take different feeds while maintaining the margins from those feeds with improved recoveries. And, of course, couple that with a strong focus on cost reductions to get us back to profitability.

Thank you. And CapEx-wise, any ballpark figures to think about? No major CapEx associated with these changes. Thank you very much for that. And I wanted to touch on the balance sheet really quickly. Crystal, can you remind us how much more you're looking to allocate towards capital returns? How much more are you looking to allocate towards debt reduction from here going forward? And just in a bigger picture, what do you think do you need in terms of cash to run the business and also be prepared for growth. So if you could comment on that, I would appreciate the call. Thank you.

Yeah, no problem. Thanks, Lucas. I think in terms of, maybe I'll start with the debt reduction piece of it. When we announced the use of proceeds, we had allocated $2 billion U.S. to that. And to date, we've completed over $1.5 billion with the combination of the buyback of our notes, as well as the the reduction in the CBA short-term loans. So I think we have around maybe $400 million U.S. remaining earmarked for debt reduction, and we're continuing to review how we may deploy that. The options obviously relate to the project financing for QV, as well as some leasing that we have on the balance sheet. So we're exploring those. I think they will take a little bit more time for us to execute because we obviously have partners and things to resolve in that regard. And then in terms of the shareholder return, so obviously we've paid the supplemental dividend, the 50 cents a share in September. The board had authorized $3.25 billion of buybacks, if you also include the $500 million from earlier in the year. Through yesterday, we had executed $882 million of that, so we'll have the remainder to execute, I think it will take us, you know, sort of 12 to 18 months longer to conclude that. And as Jonathan noted, that will depend on, obviously, the price of our shares and with, you know, consideration of value. So that's on the buyback. And then in terms of the growth projects, we had, when we issued the use of proceeds again, we had disclosed a range of capital for those and that's in our disclosure from July. And we're continuing to review those CAPEX numbers and assess those as we go through the detailed engineering work and conclude the studies. And so we'll provide updates in due course as needed. But I think you can refer back. I don't have the number at hand, but it was US 3.6 to 4.3. You can double check in July and Fraser can follow up with you offline. But So that's in regard to growth, and we've earmarked proceeds for that, and we're holding it as cash. We expect QB to generate significant cash flow as we get up to the full production and into 2025. And we, as per our capital allocation framework, if we generate cash in excess of our needs, we would return that to shareholders. And our capital allocation framework enables us to do that with that minimum 30% of available cash returned return to shareholders. So that's generally how we think about it. And if you have, I guess, follow-up questions, happy to take that.

Thank you very much for all the color, and I look forward to seeing you in November.

Thanks, Lucas. We'll see you then.

The next question is from Tim McTowners with Wolf Research. Please go ahead.

Hey, good morning. Thanks for squeezing us in. Just two that I hadn't heard addressed if I missed them. One is just on the updated economics of San Nick and Safranol. You know, it's been a while since I've seen at least a C1 cost estimate pre-COVID and besides the ass and all that. Will that be something we can hear about in November or can you just remind us on the timing of any update there?

Yeah, thanks for the question, Tim. Yes, we will provide more updates on those projects in November.

All right, well, stay tuned. And then my other question, I just thought it'd be appropriate to ping you on the zinc market because, you know, as much as we all talk about copper and other commodities, zinc has been one of the biggest high flyers that we've followed. I know one article I read attributed the trail fire maybe to some of the strengths, but Anything you could provide for us in terms of color and your outlook of how sticky this strength might be would be great. Thanks.

Tim, thanks for asking.

Ian, how about you? Yeah, thank you for the question, Tim. You know, interesting that in both the zinc and the copper concentrate markets, you're seeing structural deficits in concentrate. I would differentiate those two. And in zinc, what we see is actually a chronic shortage in uninvestment in terms of mines. and then challenged, of course, both by disruptions that have occurred within the last couple of years and shutdowns as a result of the previously low price. So looking forward, you know, you're really relying on three mines coming online in order to improve that concentrate picture, Capuchy, Ozernoi, and Terra. Capuchy, of course, has been a bit slow to ramp up. They've been shipping over quarter three and have revised their guidances. Ozernoi, uncertain of the condition of that in the future, and that material, of course, because it's Russian, would go to China. And then Bolivins-Tara began in Q3 and have begun with a smaller staff complement and look likely not to return to the same production levels that they had previously. So all of that speaks to us about a chronic shortage. of concentrate. You're seeing that reflected in the record low TCs that are occurring, and certainly in the major research houses, you know, are looking forward to that TC in 2025 and expecting it to be at significant lows, possibly even record lows. So I think that's why you're seeing zinc responding the way that it has in terms of finished metal price. Finished metal prices in North America at least have come up a little bit in the last while, and that's positive. So we're looking to think for a bright future in 2025. Thanks for the question.

Thank you.

Thanks, Timna.

I will now hand the call back over to Jonathan Price for closing remarks.

Thank you, Operator, and thanks again to everyone for joining us today. We look forward to seeing many of you in person in Vancouver in a couple of weeks for our Strategy Day and the Highland Valley site visit. All of those presentations will be posted to our website at tech.com shortly after the event. So thank you once again. And as ever, if you have any further questions, please reach out to Fraser and our IR team. Enjoy the rest of your day.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.