Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK)
(“Teck”) today announced its second quarter 2020 results, outlining
how the company has taken action to protect its people and position
for improved margins and future growth as the world comes through
the COVID-19 pandemic.
“We remain focused on protecting our people and communities,
while continuing to operate responsibly and safely to support the
economic recovery in the wake of the pandemic,” said Don Lindsay,
President and CEO. “We took steps during the quarter to further
strengthen our financial position, reduce costs and position Teck
to significantly improve margins towards the end of 2020 and early
2021 as we complete major capital projects.”
Highlights
- All operations are currently producing with comprehensive
COVID-19 prevention measures in place.
- COVID-19 had a significant negative effect on prices and demand
for our products and our financial results in Q2 2020.
- Adjusted profit attributable to shareholders(1) (2) in Q2 2020
of $89 million or $0.17 per share.
- Adjusted EBITDA(1) (2) in Q2 2020 of $485 million.
- Completed Elkview Operations plant expansion, reducing
steelmaking coal operating costs and improving margins while
maintaining total production capacity.
- QB2 construction activities gradually and safely ramping back
up with over 3,000 people currently on site, 4,000 expected by the
end of July and increasing to pre-suspension levels with a
workforce of 8,000 by the end of October, as conditions allow.
- Neptune Bulk Terminals upgrade project progressing in line with
budget and schedule.
- Achieved approximately $250 million in operating cost
reductions and $430 million in capital cost reductions to date from
expected spending contemplated at the end of June 2019.
- Reduced near-term debt maturities and further strengthened
liquidity by adding a US$1 billion revolving credit facility.
- Issued updated guidance for 2020.
- Named to the Best 50 Corporate Citizens in Canada ranking by
Corporate Knights for the 14th consecutive year.
All dollar amounts expressed in this news release are in
Canadian dollars unless otherwise noted.
Notes:
- Non-GAAP Financial Measure. See “Use of Non-GAAP Financial
Measures” section for further information.
- See “Use of Non-GAAP Financial Measures” section of the second
quarter management’s discussion and analysis dated July 22, 2020
for reconciliation.
Financial Summary Q2 2020
- Reduced near-term debt maturities and enhanced already strong
liquidity with the following measures:
- Obtained a new US$1.0 billion unsecured two-year revolving
credit facility;
- Issued US$550 million of 10-year, 3.9% Notes;
- Purchased US$268 million of 2021, 2022 and 2023 Notes; and
- Paid down US$266 million of our US$4 billion revolving credit
facility.
- Liquidity of $6.9 billion, including
$430 million of cash, as at July 22,
2020.
Financial
Metrics(CAD$ in millions, except per share data) |
Q2 2020 |
Q2 2019 |
Revenues |
$ |
1,720 |
|
$ |
3,138 |
Gross profit before depreciation and amortization1 2 |
$ |
453 |
|
$ |
1,446 |
Gross profit |
$ |
139 |
|
$ |
1,051 |
EBITDA1 2 |
$ |
177 |
|
$ |
827 |
Adjusted EBITDA1 2 |
$ |
485 |
|
$ |
1,264 |
Profit (loss) attributable to shareholders |
$ |
(149 |
) |
$ |
231 |
Adjusted profit attributable to shareholders1 2 |
$ |
89 |
|
$ |
498 |
Basic earnings (loss) per share |
$ |
(0.28 |
) |
$ |
0.41 |
Adjusted basic earnings per share1 2 |
$ |
0.17 |
|
$ |
0.88 |
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 of the second quarter
management’s discussion and analysis dated July 22, 2020 for
reconciliation.
Key Updates
COVID-19 Impact on our Business
- All of our mines are currently producing.
- Economic impacts of the pandemic have reduced demand and prices
for our products.
- We continue to act to protect the safety and health of our
employees, contractors and the communities in which we operate in
accordance with guidance from governments and public health
authorities.
- We expensed $260 million in costs associated with COVID-19 in
Q2 2020, of which $75 million were borrowing costs that would
otherwise have been capitalized had QB2 construction not been
suspended.
Steelmaking Coal Business Update
- We continue to focus on increasing margins and not volumes in
our steelmaking coal business.
- Second quarter sales reached 5 million tonnes, higher than
originally expected despite steelmakers cutting production quicker
in response to COVID-19 than during the Global Financial Crisis in
2008-2009. Chinese steel production returned to pre COVID-19 levels
during the quarter and established new average daily record highs
in May and June.
- We completed the major expansion of our Elkview Operations
plant in Q2:
- Increases Elkview’s annual capacity to 9 million tonnes from 7
million tonnes;
- Replaces higher cost production and lower quality steelmaking
coal from Cardinal River Operations while maintaining our overall
steelmaking coal production capacity; and
- Taking into account the lower costs and higher average price
for Elkview products and assuming a US$150 per tonne coal price and
a $1.38 CAD/U.S. dollar exchange rate, shifting production to an
expanded Elkview Operations translates to an increase of
approximately $160 million in annualized EBITDA.
- Steelmaking coal adjusted site cost of sales(1) (2) increased
in the second quarter to $68 per tonne with reduced production due
to COVID-19. Adjusted site cost of sales are expected to decrease
over the remainder of 2020 and we expect to end the year below $60
per tonne due to:
- A declining strip ratio, as planned;
- The Elkview plant expansion and the closure of our Cardinal
River Operations; and
- Benefits of our cost reduction and RACE21™ programs.
Quebrada Blanca Phase 2 (QB2) Update
- To protect the health and safety of our employees and
contractors and support Chilean efforts to limit transmission of
COVID-19, we temporarily suspended construction activities at QB2
in March and project construction activities remain partially
suspended.
- Through Q2, we worked to ensure robust COVID-19 prevention
protocols have been developed and implemented across the
project.
- We have completed extensive planning for ramping up
construction in a staged fashion:
- Field workforce was reduced to under 500 people in March
following demobilization and since then has gradually increased to
over 3,000 people focused on critical path activities and other
construction works;
- Planning to continue a gradual ramp up of the construction
workforce over the next three months towards the pre-suspension
workforce level with approximately 4,000 people on site by the end
of July and approximately 8,000 people by the end of October, as
conditions allow; and
- Adding some additional camp space to ensure we can maintain
necessary social distancing protocols to protect the health and
safety of our construction workforce.
- The impact of the suspension on costs and schedule will depend
on the length of the suspension and ramp up period as
follows:
- In Q2, we expensed approximately $133 million of costs
associated with the QB2 project suspension and $75 million of
interest that would have otherwise been capitalized for the
project;
- As at the end of Q2 2020, we have expensed a total of $165
million due to the suspension (excluding interest);
- During Q3, we expect to continue to expense some costs
associated with the project suspension as well as interest that
would otherwise have been capitalized;
- Assuming the staged ramp-up proceeds through Q3 as currently
planned, the aggregate estimated impact from the suspension
including expensed costs is expected to be approximately US$260 to
$290 million (excluding interest) with a schedule delay of
approximately five to six months;
- In addition, we expect to construct more camp space at an
incremental cost of US$25 to $40 million that would not have been
required absent COVID-19; and
- If we are not able to ramp up through Q3 as per the current
plan, each additional month of partial suspension impact would have
an additional cost impact of approximately US$25 to $35 million,
which would be expensed, and one month of additional schedule
delay.
Notes:
- Non-GAAP Financial Measure. See “Use of Non-GAAP Financial
Measures” section for further information.
- See “Use of Non-GAAP Financial Measures” section of the second
quarter management’s discussion and analysis dated July 22, 2020
for reconciliation.
Neptune Bulk Terminals Upgrade Progress
- The Neptune Bulk Terminal upgrade project will secure a long
term, low cost and reliable supply chain solution for our
steelmaking coal business unit. We continue to advance the project,
and major equipment deliveries remain on track.
- To date, COVID-19 related issues have not substantially
impacted works on the critical path and the project remains in line
with the previously announced capital estimate and
schedule.
- Terminal operations are suspended for five months beginning in
May in order to improve productivity and safety at the terminal as
we advance construction. Construction is progressing according to
plan, with completion expected in Q1 2021. Production volumes have
been adjusted due to the impact of COVID-19 on demand for
steelmaking coal and to reflect lower port capacity.
Strong Financial Position
- We have a strong financial position to weather the effects of
the COVID-19 pandemic and we have taken steps to enhance it further
during Q2 including:
- Adding a two-year unsecured revolving credit facility for
US$1.0 billion;
- Issuing US$550 million of 10-year, senior unsecured notes,
which bear interest at the rate of 3.9% per annum; and
- Using the proceeds of the debt issuance to purchase US$268
million of 2021, 2022 and 2023 Notes and reduce drawings on our
US$4 billion revolving credit facility.
- We have US$3.8 billion available on our US$4 billion
revolving credit facility as at July 22, 2020. This facility is
committed to Q4 2024 and does not have any earnings or cash flow
based financial covenants, does not include a credit rating trigger
and does not include a general material adverse effect borrowing
condition.
- Since the launch of our cost reduction program at the beginning
of Q4 2019, we have realized approximately $250 million in
operating cost reductions and $430 million in capital cost
reductions. These reductions are against our expected spending that
was contemplated at the end of June 2019.
Guidance Update
- We have issued updated guidance for the second half of 2020 (H2
2020) with revisions to reflect the continued uncertainty around
the extent and duration of the impact of COVID-19 on demand and
prices for our commodities. Summary guidance is outlined below and
our usual guidance tables can be found on page
35 of Teck’s full second quarter results for
2020 at the link below.
- We have changed the categories under which we present our
capital expenditures guidance. Going forward, we will present
capital expenditures as sustaining, growth or capitalized
stripping. We will continue to report QB2 capital expenditures
separately. Spending previously categorized as major enhancement
capital is now primarily considered sustaining capital and new mine
development is now included in growth capital. The Neptune Bulk
Terminals upgrade and our RACE21™ innovation-driven business
transformation program are considered growth capital.
- We are nearing the end of the major capital deployment phase
for the Neptune Bulk Terminals upgrade project (completion expected
in Q1 2021).
2020
Guidance – Summary |
|
|
Production Guidance – H2 2020 |
|
|
Steelmaking coal (million tonnes) |
|
11 – 12 |
Copper (000’s tonnes) |
|
145 – 160 |
Zinc (000’s tonnes) |
|
315 – 345 |
Refined zinc (000’s tonnes) |
|
155 – 165 |
Bitumen (million barrels) |
|
3.4 – 4.4 |
Sales Guidance – Q3 2020 |
|
|
Steelmaking coal sales (million tonnes) |
|
5.0 – 5.4 |
Red Dog zinc in concentrate sales (000’s tonnes) |
|
160 – 180 |
Unit Cost Guidance – H2 2020 |
|
|
Steelmaking coal adjusted site cash cost of sales (CAD$/tonne) |
$ |
60 – 64 |
Steelmaking coal transportation costs (CAD$/tonne) |
$ |
39 – 42 |
Copper total cash unit costs (US$/lb.) |
$ |
1.45 – 1.55 |
Copper net cash unit costs (US$/lb.) |
$ |
1.20 – 1.30 |
Zinc total cash unit costs (US$/lb.) |
$ |
0.60 – 0.65 |
Zinc net cash unit costs (US$/lb.) |
$ |
0.40 – 0.50 |
Bitumen adjusted operating costs (CAD$/barrel) |
$ |
37 – 40 |
There is still uncertainty over the extent and duration of
impacts that COVID-19 may have on demand and prices for our
commodities, on our suppliers, customers and employees and on
global financial markets. Accordingly, the ability for us to
achieve the results provided in the guidance summary above depends
on various factors, including the course of the COVID-19 pandemic
and how it might affect us, our customers and our suppliers.
Click here to view Teck’s full second quarter results for
2020.
Use of Non-GAAP Financial
Measures
Our financial results are prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board. This document refers to a
number of Non-GAAP Financial Measures which are not measures
recognized under IFRS and do not have a standardized meaning
prescribed by IFRS or Generally Accepted Accounting Principles
(GAAP) in the United States. These Non-GAAP Financial Measures are
discussed further, as well as defined and reconciled, as
applicable, to the relevant IFRS measure in the “Use of Non-GAAP
Financial Measures” section of the second quarter management’s
discussion and analysis.
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;
expected adjusted site cost of sales in our steelmaking coal
business unit; QB2 ramp-up plans and expectations; estimated impact
of the construction suspension period at our QB2 project;
expectations regarding the Neptune Bulk Terminals facility upgrade
including benefits and timing of completion of the upgrade, the
length of our planned suspension of operations at Neptune Bulk
Terminals and the impact of that suspension; our expectations
regarding the continued impact of costs associated with COVID-19
response measures on unit costs; estimated annualized EBITDA
increase related to the Elkview Operations plant expansion;
expectations regarding QB2 progress by year end and timing of peak
construction; liquidity and availability of borrowings under our
credit facilities and the QB2 project finance facility; and all
guidance appearing in this document including but not limited to
the production, sales, cost, unit cost, capital expenditure, cost
reduction and other guidance under the heading “Guidance” and
discussed in the various business unit sections.
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.
Assumptions regarding QB2 include current project assumptions
and assumptions regarding the final feasibility study, 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. Our Guidance tables
included in our second quarter management’s discussion and analysis
include footnotes with further assumptions relating to our
guidance. Assumptions regarding the 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. 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, impact of
COVID-19 protocols on labour intensive activities, 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. EBITDA improvements
may be impacted by the effectiveness of our projects, actual
commodity prices and sales volumes, among other matters.
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 suppliers, customers and markets for our
products, all of which are unknown at this time. Returning to
normal operating activities is highly dependent 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, the second quarter 2020
management’s discussion and analysis dated July 22, 2020, as well
as subsequent filings that can also be found under our profile.
WEBCAST
Teck will host an Investor Conference Call to discuss its
Q2/2020 financial results at 11:00 AM Eastern time, 8:00 AM Pacific
time, on Thursday, July 23, 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: 604.699.4621Marcia Smith, Senior Vice
President, Sustainability and External Affairs: 604.699.4616
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