Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK)
(“Teck”) today announced an update to its capital estimate for the
Quebrada Blanca Phase 2 (“QB2”) project.
At sanction in December 2018, the estimated
escalated capital cost of the project was US$5.2 billion1. The
updated estimate remains at US$5.2 billion2, and the go forward
funding requirement from April 1, 2020 is estimated at US$ $3.9
billion3, assuming a CLP/USD rate of 775 over the remainder of the
project. After project financing and partner contributions, Teck’s
remaining required cash contribution toward project capital is
estimated at US$880 million.
The revised estimate is based on a schedule that
contemplates first production by Q2 2022, and includes a
contingency of US$400 million. At the current spot exchange rate
there would be an additional benefit of approximately US$240
million4 for the project. The estimate and schedule do not reflect
the impact of the temporary suspension of project construction
activities announced on March 18, 2020 in response to the COVID-19
pandemic. Further information on the potential impact of the
suspension is provided below.
Considerable progress has been made across all
areas of the project, and many of the highest risk activities are
either completed or well-advanced. At suspension on March 18, 2020
overall progress on the project had reached 29%. The new capital
estimate is based on a detailed review of all aspects of the QB2
project. Cost pressures have been largely offset by the
depreciation of the Chilean peso.
“This has been a difficult period for the Chilean
people as they undertake efforts to slow the spread of COVID-19,
which has also impacted our people and project,” said Don Lindsay,
President and CEO of Teck. “Our current focus is the health and
safety of the reduced workforce remaining on the project required
to maintain the facilities, and on being prepared for a rapid
restart of construction activities when it is safe to do so.”
Although construction was proceeding materially in
accordance with the planned construction program until the recent
suspension, several external factors have extended the project
schedule by approximately four months and have contributed to
increasing costs. These factors include construction delays
resulting from social unrest and delays in receiving certain
permits and other regulatory approvals required for construction.
Before the benefit of the weaker Chilean peso, these delays account
for about half of the increase in costs. The other half of the cost
increases can be attributed primarily to certain additional costs
for safety and environmental management, additional road
construction and maintenance costs, severe weather impacts, and
below plan contractor performance during mobilization and ramp
up.
Notes:
- US$4.739 billion in constant Q2 2017 dollars plus estimated
escalation of US$425 million (a range of US$300 to US$470 million
provided in December 4, 2018 press release). On a 100% go forward
basis from January 1, 2019 assuming a CLP/USD exchange rate of 625,
including escalation and excluding working capital or interest
during construction.
- On a 100% go forward basis from January 1, 2019 including
escalation and excluding working capital or interest during
construction using actual realized exchange rates until March 30,
2020 and assuming a CLP/USD exchange rate of 775 from April 1,
2020.
- The project is currently being funded through the proceeds from
the subscription by Sumitomo Metal Mining Co., Ltd and Sumitomo
Corporation (“SMM and SC”) for a combined 30% interest in the
project and a US$2.5 billion project finance facility. No
significant funding is expected to be required from Teck until the
first quarter of 2021. Timing of equity contributions from Teck
assumes project finance facility and SMM and SC contributions
associated with subscription spent before first draw. Thereafter,
project finance facility used to fund all capital costs until
target debt:capital ratio achieved on a cumulative basis, after
which point project finance and equity contributions are made
ratably based on this same debt:capital ratio.
- Based on an assumed CLP/USD exchange rate of 850 and on the
project’s current estimated CLP/USD exposure.
Prior to the COVID-19 related suspension, the rate
of construction progress was increasing steadily week-on-week, and
on track to achieve our target rate of +5% per month by Q3 2020.
All major contractors were mobilized and the project workforce was
approximately 7,800 on site at any time, with a total workforce of
15,000. Numerous construction risks are now behind us with camp
construction, other temporary facilities and initial earthworks
activities completed. Engineering, procurement and contracting
activities are approaching 100% and in close out, which also
materially reduces cost risk for the balance of the project. The
new estimate for both capital costs and schedule includes updated
material quantities and productivities, together with actual
contracts and purchase orders in place. Consequently, we are
confident in the updated capital estimate and schedule before any
impacts related to the COVID-19 suspension.
Update on COVID-19 impactThere
have been no confirmed cases of COVID-19 associated with QB2
employees or contractors at the work site to date. While initially
planned for a two-week suspension, project construction activities
remain on hold. It is not currently possible to predict when the
temporary suspension of construction will be lifted. Our priorities
continue to be the safety of our reduced workforce and supporting
Chilean efforts to limit transmission of COVID-19.
Assuming a 4 week construction suspension period,
the impact is estimated to be approximately US$75 to $125 million
and a schedule delay of up to 8 weeks, including demobilization,
suspension and restart impacts. For each additional month of
suspension, we estimate an additional impact of approximately
US$25-50 million and one month of additional schedule delay. The
final cost and schedule impact will depend on timing of a partial
or full restart of construction activities, and it is possible that
remobilization could take longer if the suspension period is
significantly protracted.
During the suspension of construction we continue
to advance procurement, manufacturing and other activities not
directly related to site construction activities to accelerate
future ramp up. Extensive planning continues for a safe and
efficient remobilization once the decision to restart partial or
full construction is made. Assuming full construction activities
are restarted in the second quarter, the soonest we would expect
first production is mid 2022.
Forward-Looking StatementsThis
press release contains certain forward-looking statements within
the meaning of the United States Private Securities Litigation
Reform Act of 1995 and forward-looking information as defined in
the Securities Act (Ontario) (together referred to a
“forward-looking statements”). Forward-looking statements can be
identified by the use of words such as “estimate”, “expects”,
“intends”, “is expected”, “potential” or variations of such words
and phrases or statements that certain actions, events or results
“may”, “could”, “should”, “would”, “might” or “will” be taken,
occur, or be achieved. The forward-looking statements in this news
release include statements regarding: the updated capital estimate
for the QB2 project and costs related to the project; Teck’s
remaining required contributions toward project capital; timing of
first production; expected contingency requirements; project
schedule expectations; project progress; the duration of the
COVID-19 related suspension period; timing of restart of the
project, duration of the suspension period and projected impact of
the COVID-19 related construction suspension period; and
expectations regarding QB2 activities to be undertaken during
suspension of construction. These statements are based on a number
of assumptions, including, but not limited to, assumptions
regarding: timely receipt of permits and other regulatory
approvals; foreign exchange rates; inflation rates; construction
progress and timing of restart of full construction activities;
availability of labour; availability of project finance proceeds;
performance by contractors, subcontractors and suppliers; there
being no material and negative impact to the various contractors,
suppliers and subcontractors for the QB2 project relating to
COVID-19 or otherwise that would impair their ability to provide
goods and services as anticipated. The projected capital and
schedule estimates do not reflect the impact of the temporary
suspension of project construction activities in response to the
COVID-19 pandemic.
Forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the
actual results and performance to be materially different from
those expressed or implied by the forward-looking statements.
Factors that may cause actual results to vary include, but are not
limited to: changes in general economic conditions; unanticipated
permitting or construction issues, including but not limited to
geotechnical or archeological issues, or suspension, withdrawal or
lack of availability of permits and authorizations; unanticipated
geotechnical conditions or other factors affecting the QB2
construction plan and budget including supplier, transportation,
logistics or labour issues; adverse weather or natural disaster;
community or social unrest; disruption of financial markets,
including those affecting the project finance lenders, the company
or our partners; additional measures imposed by regulatory
authorities to implement or extend suspension of activities at QB2;
measures imposed or undertaken by regulatory authorities or by the
company, suppliers, contractors or subcontractors in response to
COVID-19 that that might otherwise directly or indirectly affect
the QB2 project; determination by the company to extend the
suspension of construction at QB2 or expand the scope of suspended
activities; and difficulties in remobilization and restart of QB2
construction due to various factors, including lack of availability
of manpower or equipment.
Certain of these risks are described in more detail
in the annual information form of Teck and in its public filings
with Canadian securities administrators and the U.S. Securities and
Exchange Commission. Teck does not assume the obligation to revise
or update these forward-looking statements after the date of this
document or to revise them to reflect the occurrence of future
unanticipated events, except as may be required under applicable
securities laws.
About Teck Teck is a diversified
resource company committed to responsible mining and mineral
development with major business units focused on copper,
steelmaking coal, zinc and energy. Headquartered in Vancouver,
Canada, its shares are listed on the Toronto Stock Exchange under
the symbols TECK.A and TECK.B and the New York Stock Exchange under
the symbol TECK. Learn more about Teck at www.teck.com or
follow @TeckResources.
Teck Media Contact: Chris Stannell
Public Relations Manager 604.699.4368chris.stannell@teck.com
Teck Investor Contact: Fraser
Phillips Senior Vice President, Investor Relations and Strategic
Analysis 604.699.4621 fraser.phillips@teck.com
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