Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK)
(“Teck”) reported adjusted EBITDA(1) (2) of $608 million for the
first quarter of 2020 compared with $1.4 billion a year ago.
Adjusted profit attributable to shareholders(1) (2) was $94 million
($0.17 per share) compared with $587 million ($1.03 per share) a
year ago.
“Our current focus is on managing the risks around COVID-19 and
ensuring we have the necessary measures in place to safeguard our
people and our local communities,” said Don Lindsay, President and
CEO. “The pandemic has had a significant negative impact on the
global economy and commodity markets and the outlook is uncertain.
However, almost all of our sites are currently operating, with some
at reduced production, and our steelmaking coal operations had a
strong finish to the quarter, exceeding our sales guidance with
site costs well below expectations.”
Significant Items |
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COVID-19 has had a significant effect on our business and
contributed to significant reductions in the prices we receive for
the commodities we produce. Teck has undertaken significant
measures in response to COVID-19, including: |
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implementing comprehensive preventative measures at all sites; |
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reducing crew sizes at some of our sites, resulting in lower
production; |
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temporarily suspending construction activities on the QB2
project; |
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temporarily suspending operations at Antamina; |
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reducing Fort Hills to a single-train facility resulting in lower
production of bitumen and contributing to an after-tax asset
impairment of $474 million in the first quarter; |
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incurring $44 million in incremental costs responding to COVID-19
including temporary suspension and demobilization of the QB2
project; and |
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suspending all previously issued 2020 guidance. |
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Further details on the effects of COVID-19 on our operations are
provided throughout the remainder of this document. |
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In April, we announced the creation of a $20 million fund to
support COVID-19 response and future recovery efforts. Funding will
support a range of critical initiatives, including procuring one
million KN95 masks to be donated for healthcare in British
Columbia, donations to healthcare facilities in Chile, a community
investment fund for local organizations in the areas where Teck
operates and donations to international relief efforts. |
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We have increased the target under our cost reduction program
to $1 billion and have achieved $375 million to date since starting
the program in the fourth quarter of 2019. |
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In April, we completed the major expansion of our Elkview
Operations plant, increasing the annual capacity to 9 million
tonnes. This will allow us to replace higher cost production from
Cardinal River Operations with lower cost production from Elkview
and maintain our overall steelmaking coal production capacity.
Taking into account the cost savings and higher average price for
Elkview products and assuming a US$150 per tonne coal price and
current exchange rates, shifting 2 million tonnes of production to
Elkview Operations translates to an increase of approximately $160
million in annualized EBITDA.(1) |
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Our liquidity remains strong at $5.8 billion, including $525
million in cash at April 20, 2020. Our US$4.0 billion revolving
credit facility is committed through the fourth quarter of 2024,
does not have a cash-flow based financial covenant, a credit rating
trigger or a general material adverse effect borrowing condition.
We have no significant debt maturities prior to 2035 and we have
investment grade credit ratings from all four credit rating
agencies. |
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In the first quarter, we had a loss attributable to shareholders of
$312 million, or a $0.57 loss per share, compared with a profit of
$630 million ($1.11 per share) a year ago. Adjusted profit
attributable to shareholders was $94 million ($0.17 per share)
compared with $587 million ($1.03 per share) in the first quarter
of 2019. |
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EBITDA(1) (2) was $45 million compared with $1.4 billion in the
first quarter of 2019. Our adjusted EBITDA in the first quarter
totaled $608 million compared with $1.4 billion last year. |
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Gross profit was $398 million in the first quarter compared with
$1.0 billion a year ago. Gross profit before depreciation and
amortization(1) (2) was $776 million compared with $1.4 billion in
the first quarter of 2019. |
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Our steelmaking coal operations had a strong finish to the first
quarter with sales of 5.7 million tonnes exceeding our previously
issued 2020 first quarter guidance range of 4.8 to 5.2 million
tonnes and adjusted site cash cost of sales(1) (2) of $63 per
tonne, which was also significantly lower than previously issued
guidance. |
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On March 31, 2020, we issued an updated capital cost estimate for
our QB2 project of US$5.2 billion, including escalation, with
US$3.9 billion remaining to be spent from April 1, 2020, subject to
the impact of COVID-19 on the project schedule and timing of
capital spending. With funding from Sumitomo Metal Mining Co., Ltd
and Sumitomo Corporation (SMM/SC) and the US$2.5 billion limited
recourse project financing, no significant funding is expected to
be required from Teck until the first quarter of 2021. |
Notes: |
(1) |
Non-GAAP Financial Measure. See “Use of Non-GAAP Financial
Measures” section for further information. |
(2) |
See “Use of Non-GAAP Financial Measures” section for
reconciliation. |
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This management’s discussion and analysis is dated as at
April 20, 2020 and should be read in conjunction with the unaudited
consolidated financial statements of Teck Resources Limited
(“Teck”) and the notes thereto for the three months ended March 31,
2020 and with the audited consolidated financial statements of Teck
and the notes thereto for the year ended December 31, 2019. In this
news release, unless the context otherwise dictates, a reference to
“the company” or “us,” “we” or “our” refers to Teck and its
subsidiaries. Additional information, including our Annual
Information Form and Management’s Discussion and Analysis for the
year ended December 31, 2019, is available on SEDAR at
www.sedar.com.
This document contains forward-looking statements.
Please refer to the cautionary language under the heading
“CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION”
below.
Profit (Loss) and Adjusted
Profit
We have changed the basis on which we adjust earnings in the
following table. Refer to page 44 in Teck’s full first quarter
results for 2020 at the link below for further information.
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Three months |
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ended March 31, |
(CAD$
in millions) |
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2020 |
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2019 |
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Profit
(loss) attributable to shareholders |
$ |
(312 |
) |
$ |
630 |
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Add (deduct) on an
after-tax basis: |
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Asset impairment |
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474 |
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– |
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COVID-19
costs |
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22 |
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– |
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Environmental
costs |
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(87 |
) |
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29 |
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Inventory
write-downs (reversals) |
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27 |
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(8 |
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Share-based
compensation |
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(22 |
) |
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12 |
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Commodity
derivatives |
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15 |
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(14 |
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Debt prepayment
option gain |
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– |
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(51 |
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Other |
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(23 |
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(11 |
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Adjusted
profit attributable to shareholders1 |
$ |
94 |
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$ |
587 |
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Adjusted
basic earnings per share1 2 |
$ |
0.17 |
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$ |
1.03 |
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Adjusted
diluted earnings per share1 2 |
$ |
0.17 |
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$ |
1.02 |
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Notes: |
1. |
Non-GAAP Financial Measure. See “Use of Non-GAAP Financial
Measures” section for further information. |
2. |
See “Use of Non-GAAP Financial Measures” section for
reconciliation. |
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In addition to the items identified in the table above, our
results include gains and losses due to changes in market prices in
respect of pricing adjustments. Pricing adjustments resulted in $64
million of after-tax charges ($98 million before tax) in the first
quarter, or $0.12 per share. We do not include these amounts in our
adjusted profit determination.
Click here to view Teck’s full first quarter
results for 2020.
CAUTIONARY STATEMENT ON FORWARD-LOOKING
STATEMENTS
This news release contains certain forward-looking information
and forward-looking statements as defined in applicable securities
laws (collectively referred to as forward-looking statements).
These statements relate to future events or our future performance.
All statements other than statements of historical fact are
forward-looking statements. The use of any of the words
“anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”,
“will”, “project”, “predict”, “potential”, “should”, “believe” and
similar expressions is intended to identify forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking statements. These statements speak only as of the
date of this news release.
These forward-looking statements include, but are not limited
to, statements concerning: our focus and strategy; anticipated
global and regional supply, demand and market outlook for our
commodities; the potential impact of the COVID-19 on our business
and operations, including our ability to continue operations at our
sites; our ability to manage challenges presented by COVID-19; cost
reduction program targets and timing of achieving those targets;
capital cost estimate for the QB2 project and anticipated timing of
first production; estimated impact of the construction suspension
period at our QB2 project; expectations regarding the Neptune Bulk
Terminals facility upgrade including costs, benefits and timing
thereof and the frequency and length of our planned suspension of
operations at Neptune Bulk Terminals and the impact of that
suspension; expectation that we will be able to extend the lives of
Fording River, Elkview and Greenhills operations and offset the
closure of our Coal Mountain and Cardinal River operations;
projected coal production capacity; estimated annualized EBITDA
increase related to the Elkview Operations plant expansion; timing
of construction and completion of our Fording AWTF and our SRFs;
our expectation that Fording River AWTF will be the last full-scale
AWTF and that future treatment facilities will be SRFs; plans and
ability to increase coal production levels in the fourth quarter of
2020; expectation that the tailings and water-related projects at
Red Dog will ensure we can continue to optimize Red Dog mine and
avoid potential constraints on production in the future; expected
2020 Fort Hills annual production and unit operating costs; capital
spending estimates; targeted annualized EBITDA improvements and
other benefits that will be generated from our RACE21TM
innovation-driven business transformation program and the
associated timing and implementation costs; liquidity and
availability of borrowings under our credit facilities and the QB2
project finance facility; timing of Teck’s next contributions to
QB2 project capital; and the accounting treatment of COVID-19
related matters.
These statements are based on a number of assumptions,
including, but not limited to, assumptions regarding general
business and economic conditions, interest rates, commodity and
power prices, acts of foreign or domestic governments and the
outcome of legal proceedings, the supply and demand for,
deliveries of, and the level and volatility of prices of copper,
coal, zinc and blended bitumen and our other metals and minerals,
as well as oil, natural gas and other petroleum products, the
timing of the receipt of regulatory and governmental approvals for
our development projects and other operations, including mine
extensions; positive results from the studies on our expansion and
development projects; our ability to secure adequate
transportation, including rail, pipeline and port service, for our
products our costs of production and our production and
productivity levels, as well as those of our competitors,
continuing availability of water and power resources for our
operations, our ability to secure adequate transportation, pipeline
and port services for our products; changes in credit market
conditions and conditions in financial markets generally, the
availability of funding to refinance our borrowings as they become
due or to finance our development projects on reasonable terms; our
ability to procure equipment and operating supplies in sufficient
quantities and on a timely basis; the availability of qualified
employees and contractors for our operations, including our new
developments and our ability to attract and retain skilled
employees; the satisfactory negotiation of collective agreements
with unionized employees; the impact of changes in Canadian-U.S.
dollar and other foreign exchange rates on our costs and results;
engineering and construction timetables and capital costs for our
development and expansion projects; the benefits of technology for
our operations and development projects, including the impact of
our RACE21™ program; costs of closure, and environmental compliance
costs generally, of operations; market competition; the accuracy of
our mineral reserve and resource estimates (including with respect
to size, grade and recoverability) and the geological, operational
and price assumptions on which these are based; tax benefits and
tax rates; the outcome of our coal price and volume negotiations
with customers; the outcome of our copper, zinc and lead
concentrate treatment and refining charge negotiations with
customers; curtailment measures on oil production taken by the
Government of Alberta; the resolution of environmental and other
proceedings or disputes; our ability to obtain, comply with and
renew permits in a timely manner; and our ongoing relations with
our employees and with our business and joint venture partners.
Targeted RACE21TM EBITDA improvements depend on, among other
matters, achievement of expected production and operating results,
ability of transportation service providers to move additional
product to market, future commodity prices and exchange rates and
various other factors.
In addition, assumptions regarding the Elk Valley Water Quality
Plan include assumptions that additional treatment will be
effective at scale, and that the technology and facilities operate
as expected, as well as additional assumptions discussed under the
heading “Elk Valley Water Management Update”. Assumptions regarding
QB2 include current project assumptions and assumptions regarding
the final feasibility study, CLP/USD exchange rate of 775, as well
as 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 during the suspension
period or ramp-up of construction activities. Assumptions regarding
the costs and benefits of the Neptune Bulk Terminals expansion
include assumptions that the relevant project is constructed and
operated in accordance with current expectations. Statements
regarding the availability of our credit facilities and project
financing facility are based on assumptions that we will be able to
satisfy the conditions for borrowing at the time of a borrowing
request and that the facilities are not otherwise terminated or
accelerated due to an event of default. Statements concerning Fort
Hills’ future production costs or volumes are based on numerous
assumptions of management regarding operating matters and on
assumptions that counterparties perform their contractual
obligations, that operating and capital plans will not be disrupted
by issues such as mechanical failure, unavailability of parts and
supplies, labour disturbances, interruption in transportation or
utilities, adverse weather conditions, and that there are no
material unanticipated variations in the cost of energy or supplies
and may be further impacted by reduced demand for oil and low oil
prices. The foregoing list of assumptions is not exhaustive. Events
or circumstances could cause actual results to vary materially.
Factors that may cause actual results to vary materially
include, but are not limited to, changes in commodity and power
prices, changes in market demand for our products, changes in
interest and currency exchange rates, acts of governments and the
outcome of legal proceedings, inaccurate geological and
metallurgical assumptions (including with respect to the size,
grade and recoverability of mineral reserves and resources),
unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications
or expectations, cost escalation, unavailability of materials and
equipment, government action or delays in the receipt of government
approvals, industrial disturbances or other job action, adverse
weather conditions and unanticipated events related to health,
safety and environmental matters), union labour disputes, political
risk, social unrest, failure of customers or counterparties
(including logistics suppliers) to perform their contractual
obligations, changes in our credit ratings, unanticipated increases
in costs to construct our development projects, difficulty in
obtaining permits, inability to address concerns regarding permits
of environmental impact assessments, and changes or further
deterioration in general economic conditions. Certain operations
and projects are not controlled by us; schedules and costs may be
adjusted by our partners, and timing of spending and operation of
the operation or project is not in our control. Current and new
technologies relating to our Elk Valley water treatment efforts may
not perform as anticipated, and ongoing monitoring may reveal
unexpected environmental conditions requiring additional remedial
measures. EBITDA improvements may be impacted by the effectiveness
of our projects, actual commodity prices and sales volumes, among
other matters. The updated QB2 capital cost estimate and timing of
first production do not take into account the impact of the current
suspension, and the length of the suspension will impact costs and
schedule.
The forward-looking statements in this news release and actual
results will also be impacted by the effects of COVID-19 and
related matters. The overall effects of COVID-19 related matters on
our business and operations and projects will depend on how quickly
our sites can safely return to normal operations, and on the
duration of impacts on our customers and markets for our products,
all of which are unknown at this time. Returning to normal
operating activities is highly dependant on the progression of the
pandemic and the success of measures taken to prevent transmission,
which will influence when health and government authorities remove
various restrictions on business activities.
We assume no obligation to update forward-looking statements
except as required under securities laws. Further information
concerning risks and uncertainties associated with these
forward-looking statements and our business can be found in our
Annual Information Form for the year ended December 31, 2019, filed
under our profile on SEDAR (www.sedar.com) and on EDGAR
(www.sec.gov) under cover of Form 40-F, as well as subsequent
filings that can also be found under our profile.
Scientific and technical information in this quarterly report
regarding our coal properties, which for this purpose does not
include the discussion under “Elk Valley Water Management Update”
was reviewed, approved and verified by Messrs. Don Mills P.Geo. and
Robin Gold P.Eng., each employees of Teck Coal Limited and each a
Qualified Person as defined under National Instrument 43-101.
Scientific and technical information in this quarterly report
regarding our other properties was reviewed, approved and verified
by Rodrigo Alves Marinho, P.Geo., an employee of Teck and a
Qualified Person as defined under National Instrument 43-101.
WEBCAST
Teck will host an Investor Conference Call to discuss its
Q1/2020 financial results at 11:00 AM Eastern time, 8:00 AM Pacific
time, on Tuesday, April 21, 2020. A live audio
webcast of the conference call, together with supporting
presentation slides, will be available at our website at
www.teck.com. The webcast will be archived at www.teck.com.
Reference:
Fraser Phillips, Senior Vice President, Investor Relations and
Strategic Analysis: 604.699.4621
Marcia Smith, Senior Vice President, Sustainability and External
Affairs: 604.699.4616
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