News

Teck Resources Limited (TECK) Q1 2023 Earnings Call Transcript

Teck Resources Limited (TECK)

Q1 2023 Earnings Conference Call

Company Participants

Fraser Phillips - Senior Vice President, Investor Relations & Strategic Analysis

Jonathan Price - Chief Executive Officer

Crystal Prystai - Chief Financial Officer

Red Conger - President and Chief Operating Officer

Robin Sheremeta - Senior Vice President, Coal

Tyler Mitchelson - Senior Vice President, Copper Growth

Conference Call Participants

Greg Barnes - TD Securities

Orest Wowkodaw - Scotiabank

Emily Chieng - Goldman Sachs

Carlos Alba - Morgan Stanley

Brian Macarthur - Raymond James

Shane Nagle - National Bank Financial

Lawson Winder - Bank of America Securities

Lucas Pipes - B. Riley Securities

Alex Terentiew - Stifel

Timna Tanners - Wolfe Research

Dalton Baretto - Canaccord Genuity

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Teck's First Quarter 2023 Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] This conference call is being recorded on Wednesday, April 26, 2023.

I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analyst. Please, go ahead.

Fraser Phillips

Thanks, Therese, and good morning, everyone, and thanks for joining us this morning for our quarterly conference call. Please note, today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statements.

Please refer to Slide two for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call. Explanations and reconciliations regarding these measures can be found in our MD&A and the latest press release on our website.

Jonathan Price, our CEO, will begin today's call with some comments on this morning's announcement. Crystal Prystai, our CFO, will follow with our first quarter 2023 results. Then we'll conclude the call with a question-and-answer period.

With that, I will turn the call over to you, Jonathan.

Jonathan Price

Thank you, Fraser, and good morning, everyone. Before we get into the Q1 results, I want to start by speaking to our announcement this morning that we have withdrawn the separation proposal that was to be considered by shareholders at our annual and special meeting today.

That proposal was the result of a detailed process undertaken by a special committee of the Board to review all the options and identify the best path forward for our shareholders and company.

From the outset, we've been clear that the focus of that work by our Board, our senior management team and myself is maximizing value for our shareholders. And that work firmly identified that separating base metals and steelmaking coal was the best way to achieve that goal.

There is no doubt in my mind all the minds of our Board and management team that there is greater value and optionality in having a stand-alone pure-play metals business, separate from the steelmaking coal business, and we are confident from our discussions with shareholders that a substantial majority of shareholders support the strategy of separating Teck Metals and EVR.

At the same time, we've also heard very clearly that some shareholders would prefer a more direct approach for that separation. So our plan going forward is to evaluate alternatives for a responsible separation of our businesses, taking into account the feedback we've received. Our goal will be to pursue a simpler and more direct separation, which is the best path to unlock the full value of Teck for shareholders.

My job is about responsibly creating value for our shareholders and all stakeholders. We're driving intrinsic value organically through the development of best-in-class projects and executing on our growth strategy. There is real value in being a good actor with good business practices and the approach to doing business has made Teck a partner of choice, minimizing disruptions to our operations and creating opportunities for our business and our stakeholders.

Teck is a fantastic company with a strong future. We have the right assets, the right partners and the right people to capture the opportunities created by the energy transition, which we are well-positioned to realize in the near-term.

And we have a number of near-term value creation milestones ahead of us. Those include the ramp-up of our flagship QB2 copper project, demonstrating QB2's ability to operate consistently to plan is a key area of focus for us and a major value inflection point.

Importantly, even beyond QB2, we have a portfolio of high quality cornerstone assets in stable mining jurisdictions as well as a number of copper growth projects in our portfolio. And this is a copper growth pipeline that is the envy of the industry and in an advanced state of readiness thanks to years of strategic and deliberate pre-investment. We will be in a position to double copper production in the near-term and double it again by the end of the decade.

At the same time, our steelmaking coal business is best-in-class, underpinned by an extensive reserve base with high margins, and it will be positioned to capitalize on the developing global supply gap from existing mine depletion and lack of new projects coming into production.

Long-term shareholder value can be created in a variety of ways. And today, we are focused on a three-pronged approach to value creation. Firstly, through a separation of resources to unlock the value of an exceptional high growth base metals business. Secondly, through the development of our portfolio of corporate projects, to create substantial new intrinsic value. Thirdly, and all the while retaining our focus on strong cash returns to our shareholders.

Beyond this focused approach, M&A can also play a role in creating value when done at the right price with the right partner at the right time. We have premium businesses. And when it comes to M&A, we firmly believe that competition for assets drives value. In M&A, you have to carefully evaluate both risk to value and timing and value. It is important to understand the consideration you would receive and the timing of when you would receive it.

All of these factors inform our thinking as to how and when Teck should contemplate a transaction with anyone. Management and the Board take their duties incredibly seriously, but will not engage on something that is a distraction from our mandate to create the greatest value with the greater certainty for our shareholders.

I want to emphasize that we have greatly appreciated the engagement that we have had with our shareholders leading up to today and the very strong support shown for the goal of separation to unlock value. And we look forward to working to execute on a separation approach that reflects their considered feedback and ensure we maximize the value and opportunity it creates for all of our stakeholders.

So thank you. And with that, I will turn it over to Crystal to discuss our Q1 results.

Crystal Prystai

Thanks, Jonathan. Starting with our financial results for Q1 on slide 8. We're pleased with the positive start to the year. We delivered strong financial performance in the quarter with strong commodity prices and steelmaking coal sales volumes. Adjusted EBITDA was $2 billion and adjusted profit attributable to shareholders was $930 million, or $1.78 per share on a diluted basis. We paid dividends of $0.625 per share in the quarter, representing a quarterly base dividend of $0.125 and a supplemental dividend of $0.50 per share. Additionally, in February, the Board authorized the purchase of up to $250 million of outstanding Class B shares.

Turning now to slide 9. During the quarter, we significantly advanced our comparable strategy with the production of first bulk copper concentrate at QB2. We are just getting started on unlocking the tremendous value from QB, which is truly a world-class mine. We achieved a number of significant milestones in the quarter in the QB2 ramp-up. The desalination plant is operational and producing water, which is being delivered to the concentrator through the water pipeline. The primary crusher and conveyors are delivering ore to the stockpile. Commissioning of the grinding and flotation systems on Line 1 are ongoing. The tailings facility has received tailings from commissioning activities and the concentrate transport system is in pre-commissioning.

We continue to expect to double our consolidated copper production in 2024 as QB2 is expected to reach full production rates at the end of this year. However, the result of the delay in the startup of Line 1 and recent foreign exchange impacts have put pressure on our project capital cost guidance. Significant efforts are ongoing to alleviate these cost pressures.

However, total capital cost for the project could increase to US$8 billion to US$8.2 billion. Over 30% of the increase from our previously disclosed guidance relates to non-controllable foreign exchange impacts.

Turning now to Slide 10 with the key highlights from our first quarter. We highlight the achievements on Slide 10 across all four pillars of our copper growth strategy in the first quarter. First, in addition to production of first copper at QB2, we meaningfully advanced the path to value for our other copper growth projects in our portfolio. In particular, we successfully closed two significant transactions relating to the joint venture partnerships for new range and San Nicolas.\

At the same time, we marked a step change towards the rebalancing of our portfolio of high-quality assets to low-carbon commodities with the closing of our previously announced sales of Quintette and our interest in Fort Hills. The latter completes our successful exit from the oil business.

Third, and as I mentioned previously, we returned significant cash to shareholders through dividends and have authorization for 250 million of share buybacks. This reflects a distribution of 40% of the Fort Hills proceeds received in the first quarter. We continue to maintain a strong balance sheet with liquidity of $8 billion, including $2.6 billion of cash. And finally, we continue to build on our strong sustainability track record. We were honored to be recognized as one of the Global 100 most sustainable corporations by Corporate Knights for the fifth consecutive year, and we are pleased to be named to the Bloomberg Gender Equality Index for the sixth consecutive year.

We've outlined the key drivers for our profitability on Slide 11. Adjusted EBITDA was $2 billion in the quarter and lower than the same period last year as a result of lower prices for our principal products. To a lesser extent, lower sales volumes for copper and zinc, and inflationary pressures on our unit costs also impacted EBITDA as compared to Q1 of last year.

Inflationary cost pressures have moderated but continued to have an impact across our business units in the first quarter, as we expected would be the case when developing our 2023 annual cost guidance. Inflation impacted our operating cost by 6% when comparing to the same period last year. It is important to note that the primary drivers of cost increases are not related to key mining drivers such as mine productivity and strip ratio, which both remain relatively stable. We remain highly focused on managing our controllable operating expenditures, and our unit cost guidance is unchanged across our business units from our previously disclosed ranges for 2023....

]]>

© www.conferencecalltranscripts.org 2020 | Terms of Service