Reference: Greg Waller, VP Investor Relations & Strategic Analysis 604.699.4014 Marcia Smith, SVP Sustainability and External Affairs 604.699.4616
Teck Resources Limited +1 604 699 4000 Tel Suite 3300, 550 Burrard Street +1 604 699 4750 Fax Vancouver, BC Canada V6C 0B3 www.teck.com
For Immediate Release Date: July 25, 2013 13-24-TR
TECK REPORTS UNAUDITED SECOND QUARTER RESULTS FOR 2013
Vancouver, BC – Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) (“Teck”)
reported second quarter adjusted profit of $197 million, or $0.34 per share, compared with $398 million or $0.68 per share in 2012.
“We are pleased with our operating performance this quarter and have made good progress on our cost reduction program. However, prices for our products have continued to weaken, particularly steelmaking coal. We continue to adapt to changing market conditions and are taking steps to further reduce our capital spending, slowing the start of our Quintette mine reopening and delaying the development of Quebrada Blanca Phase 2. In addition, we are reducing our sustaining capital expenditures and increasing the targets for our cost reduction program,” said Don Lindsay, President and CEO.
Highlights and Significant Items
- Gross profit before depreciation and amortization was $871 million in the second quarter compared with $1.1 billion the second quarter of 2012.
- Cash flow from operations, before working capital changes, was $584 million in the second quarter compared with $874 million a year ago.
- Profit attributable to shareholders was $143 million and EBITDA was $670 million in the second quarter.
- Our cash balance was $2.8 billion at June 30, 2013.
- Our cost reduction program has exceeded our initial goals, and to date our existing operations have identified over $250 million of annual ongoing potential cost savings at constant production levels and have implemented $220 million of these initiatives. We have recently revised our target savings to $300 million.
- Our Quebrada Blanca operations returned to profitability in the second quarter as a result of our initiatives to reduce workforce and operating costs.
- We are taking steps to reduce capital spending in light of market conditions, slowing the start of the Quintette mine reopening and delaying development of the Quebrada Blanca Phase 2 expansion project.
All dollar amounts expressed in this news release are in Canadian dollars unless otherwise noted.
Reference: Greg Waller, VP Investor Relations & Strategic Analysis 604.699.4014 Marcia Smith, SVP Sustainability and External Affairs 604.699.4616 Additional corporate information is available at www.teck.com
- To date we have reached agreements with our coal customers to sell 6.4 million tonnes of coal in the third quarter of 2013 at an average price of US$143 per tonne. We expect to conclude additional sales over the course of the quarter.
- We paid a $0.45 per share dividend on our Class A common shares and Class B subordinate voting shares on July 2, 2013.
2 Teck Resources Limited 2013 Second Quarter News Release
This management’s discussion and analysis is dated as at July 25, 2013 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 June 30, 2013 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2012. 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, 2012, 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.
Overview
Profits have declined in comparison to last year as a result of lower prices for all of our principal products. Coal and copper prices in the second quarter declined by 23% and 9%, respectively, compared with the same period a year ago. These lower prices have reduced our revenues by approximately $350 million in the second quarter based on 2013 sales volumes.
As a result, we have focused on cost reduction at all of our sites and have made significant progress. The cost reduction program has identified over $250 million of potential ongoing, annual operating cost savings across the company, of which $220 million have been implemented. An additional $80 million of one-time cost savings and deferrals have also been identified and implemented. As a result, our site cash production costs this year are down by approximately $65 million per quarter since the beginning of the program in the fourth quarter of 2012, excluding the effect of labour settlements in 2012. We have recently increased our target savings level to $300 million which we expect to achieve without affecting either production or our performance in sustainability or health and safety. We are also planning to reduce our spending on exploration by approximately 15% while maintaining our commitments to partners.
Also as a result of market conditions and other factors, we have slowed the development of certain internal growth projects and deferred capital spending. At Quintette, we have delayed the final stage of development for the mine and will not commence production until the steelmaking coal market recovers. We have also slowed the development of Quebrada Blanca Phase 2 in part as a result of market conditions but also because we have identified issues linked to permitting for our existing operations which need to be reviewed in connection with the resubmission of the social environmental impact assessment (“SEIA”) for Phase 2. While the timetable for resubmission of the Phase 2 SEIA is unclear, it is not expected before the fourth quarter of 2014. On this basis, the earliest construction could commence would be early 2016 with first production in 2019. We are also taking action to reduce sustaining capital expenditures.
During the quarter we have made significant progress in improving the efficiency of our mines and lowering our unit costs. However, our overall profitability has been adversely affected by lower commodity prices. We note prices have remained relatively steady for the past two months and that there are encouraging signs from the world’s developed economies. China’s percentage growth rates have slowed, but economic activity continues to increase in absolute terms.
3 Teck Resources Limited 2013 Second Quarter News Release
Profit and Adjusted Profit*
Adjusted profit, which excludes the effect of certain transactions as described in the table below, was $197 million, or $0.34 per share, in the second quarter of 2013 compared with $398 million, or $0.68 per share, in the same period a year ago. The decline in adjusted profit was primarily due to lower prices for our principal products, especially for coal. Partly offsetting the price declines were reduced operating costs resulting from our cost reduction program and lower finance expenses.
Profit attributable to shareholders was $143 million, or $0.25 per share, in the second quarter compared with $354 million or $0.60 per share in the same period last year.
Three months Six months ended June 30, ended June 30,
| ($ in millions) | 2013 | 2012 | 2013 | 2012 |
| Profit attributable to shareholders as reported Add (deduct): Asset sales and provisions Foreign exchange losses Derivative (gains) losses Collective agreement charges Financing items Tax items Adjusted profit Adjusted earnings per share | $ 354 (19) 13 12 38 - - | $ 612 (21) 19 (47) 50 329 - | ||
| $ 143 | $ 462 | |||
| 15 | 22 | |||
| 18 | 22 | |||
| 1 | (1) | |||
| - | - | |||
| - | - | |||
| 20 | 20 | |||
| $ 197 | $ 398 | $ 525 | $ 942 | |
| $ 0.68 | $ 1.60 | |||
| $ 0.34 | $ 0.90 |
- Our financial results are prepared in accordance with International Financial Reporting Standards (“IFRS”). This news release refers to adjusted profit, adjusted earnings per share, EBITDA and gross profit before depreciation and amortization, which are not measures recognized under IFRS in Canada and do not have a standardized meaning prescribed by IFRS or Generally Accepted Accounting Principles (“GAAP”) in the United States. For adjusted profit we adjust profit attributable to shareholders as reported to remove the effect of certain kinds of transactions in these measures. EBITDA is profit attributable to shareholders before net finance expense, income taxes, depreciation and amortization. Gross profit before depreciation and amortization is gross profit with depreciation and amortization added back. These measures may differ from those used by, and may not be comparable to such measures as reported by, other issuers. We disclose these measures, which have been derived from our financial statements and applied on a consistent basis, because we believe they are of assistance in understanding the results of our operations and financial position and are meant to provide further information about our financial results to investors.
4 Teck Resources Limited 2013 Second Quarter News Release Our business unit results are presented in the tables below.
Three Months ended June 30 Gross profit before depreciation and
($ in millions) Revenues amortization Gross profit
| 2012 | 2012 | 2012 | ||||
| 2013 | 2013 | 2013 | ||||
| Copper Coal Zinc Energy | $ 731 1,362 467 1 | $ 368 719 50 - | $ 286 569 25 - | |||
| $ 693 | $ 338 | $ 240 | ||||
| 1,002 | 444 | 277 | ||||
| 455 | 87 | 63 | ||||
| 2 | 2 | 2 | ||||
| Total | $ 2,561 | $ 1,137 | $ 880 | |||
| $ 2,152 | $ 871 | $ 582 |
Gross profit before depreciation and amortization from our copper business unit decreased by $30 million in the second quarter compared with a year ago primarily as a result of lower copper prices and reduced by-product revenues. This was partially offset by lower unit operating costs and slightly higher sales volumes in the period due to timing of shipments. The port that serves the Quebrada Blanca mine experienced a strike in the first quarter of 2013 that resulted in a portion of sales being shifted into the second quarter. Copper production was 85,000 tonnes in the second quarter, or 6% lower than last year, as a result of slightly lower ore grades and mill throughput at Highland Valley Copper and a declining production base at Quebrada Blanca. Copper prices averaged US$3.24 per pound in the second quarter of 2013 compared with US$3.57 per pound a year ago. Cash unit costs, before by-product credits, declined to US$2.07 per pound compared with US$2.14 per pound in the second quarter of 2012. Cash unit costs after by-product credits were US$1.70 per pound compared with US$1.63 per pound in the second quarter of 2012 as a result of a reduction in molybdenum and other by-product credits.
Gross profit before depreciation and amortization from our coal business unit declined by $275 million in the second quarter compared with the same period a year ago due to significantly lower coal prices, partly offset by lower unit operating costs. The average coal price of US$156 per tonne in the second quarter was 23% lower than the same quarter a year ago, due to weaker steelmaking coal market conditions and a corresponding reduction in spot pricing levels. Coal sales of 6.3 million tonnes in the second quarter were 6% lower than the same period last year. Coal sales reached a new record high of 12.9 million tonnes, a 7% increase over the first half of 2012 and nearly half a million tonnes above the previous record established in 2004. Our long-term relationships and agreements provide a level of certainty on volumes, and supported the record high deliveries to customers for the first half of 2013. Production in the second quarter of 6.0 million tonnes was 5% higher than the same period a year ago. The cost of product sold in the second quarter, before transportation and depreciation charges, was $50 per tonne, or $9 per tonne lower than in the same quarter in 2012. Cost reduction efforts at the mines, which accompanied the reduction in production levels beginning in mid-August 2012, have been successful and are ongoing.
Gross profit from our zinc business unit, before depreciation and amortization and Trail’s onetime labour settlement charge of $51 million in 2012, decreased by $14 million compared with a year ago. The decrease was primarily due to substantially lower silver revenues from Trail and to a lesser extent, lower zinc prices in the period. Red Dog’s zinc production rose by 7% to
5 Teck Resources Limited 2013 Second Quarter News Release 138,700 tonnes, primarily due to increased throughput, and sales volumes were 26% ahead of last year due to the timing of sales. Production volumes and sales in the second quarter at Trail remained similar to a year ago.
Revenues
Revenues from operations were $2.2 billion in the second quarter compared with $2.6 billion a year ago. Revenues from our copper business unit declined by $38 million from a year ago as lower copper prices and molybdenum revenues were partially offset by higher copper sales volumes. Coal revenues decreased by $360 million compared with the second quarter of 2012 as a result of substantially lower coal prices and a 6% decline in sales volumes. Revenues from our zinc business unit remained similar to a year ago as higher zinc sales from Red Dog offset significantly lower silver revenues from Trail and a modest decline in zinc prices in the period.
Average Prices and Exchange Rates*
Three months Six months ended June 30, ended June 30,
| 2013 | 2012 % Change | 2013 | 2012 % Change | |
| Copper (LME Cash - US$/pound) Coal (realized - US$/tonne) Zinc (LME Cash - US$/pound) Silver (LME PM fix – US$/ounce) Molybdenum (published price - US$/pound) Lead (LME Cash - US$/pound) Cdn/U.S. exchange rate (Bank of Canada) | 3.57 -9% 202 -23% 0.87 -5% 29 -21% 14 -21% 0.90 +3% 1.01 +1% | 3.67 -7% 212 -25% 0.90 -2% 31 -16% 14 -21% 0.92 +8% 1.01 +1% | ||
| 3.24 | 3.42 | |||
| 156 | 159 | |||
| 0.83 | 0.88 | |||
| 23 | 26 | |||
| 11 | 11 | |||
| 0.93 | 0.99 | |||
| 1.02 | 1.02 |
- Except for coal prices, the average commodity prices disclosed above are based on published benchmark prices and are provided for information only. Our actual revenues are determined using commodity prices and other terms and conditions specified in our various sales contracts with our customers. The molybdenum price is the price published in Platts Metals Week.
Our year-to-date business unit results are presented in the table below:
Six Months ended June 30 Gross profit before depreciation and
($ in millions) Revenues amortization Gross profit
| 2012 | 2012 | 2012 | ||||
| 2013 | 2013 | 2013 | ||||
| Copper Coal Zinc Energy | $ 1,484 2,560 1,062 2 | $ 746 1,422 168 1 | $ 586 1,167 119 - | |||
| $ 1,377 | $ 689 | $ 493 | ||||
| 2,062 | 960 | 623 | ||||
| 1,040 | 213 | 165 | ||||
| 3 | 3 | 2 | ||||
| Total | $ 5,108 | $ 2,337 | $ 1,872 | |||
| $ 4,482 | $ 1,865 | $ 1,283 |
6 Teck Resources Limited 2013 Second Quarter News Release The table below shows our production and sales of our major products.
| Units (000's) Production | Sales | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Second Quarter Year-to-date (note 1) 2013 2012 2013 2012 Principal products Copper Contained in concentrate tonnes 70 72 139 135 Cathode tonnes 15 18 29 36 85 90 168 171 Coal tonnes 6,014 5,707 12,248 11,972 Zinc Contained in concentrate tonnes 161 149 308 296 Refined tonnes 70 69 144 143 Other products Lead Contained in concentrate tonnes 25 24 48 47 Refined tonnes 21 22 42 43 Molybdenum Contained in concentrate pounds 2,042 3,234 4,418 6,204 | Second Quarter Year-to-date 2013 2012 2013 2012 69 67 140 132 18 18 29 36 | ||||||||||
| 2012 | 2012 | ||||||||||
| 2013 | 2013 | 2013 | 2013 | ||||||||
| Principal products Copper Contained in concentrate tonnes Cathode tonnes Coal tonnes Zinc Contained in concentrate tonnes Refined tonnes Other products Lead Contained in concentrate tonnes Refined tonnes Molybdenum Contained in concentrate pounds | 135 36 | 132 36 | |||||||||
| 70 | 139 | 69 | 140 | ||||||||
| 15 | 29 | 18 | 29 | ||||||||
| 90 | 171 | 85 | 168 | ||||||||
| 85 | 168 | 87 | 169 | ||||||||
| 5,707 149 69 24 22 3,234 | 11,972 296 143 47 43 6,204 | 6,716 79 69 - 21 3,280 | 12,021 214 145 - 43 6,390 | ||||||||
| 6,014 | 1 | 2,248 | 6,285 | 1 | 2,863 | ||||||
| 161 | 308 | 97 | 221 | ||||||||
| 70 | 144 | 70 | 143 | ||||||||
| 25 | 48 | - | - | ||||||||
| 21 | 42 | 21 | 41 | ||||||||
| 2,042 | 4,418 | 1,823 | 4,291 |
(1) We include 100% of production and sales from our Highland Valley Copper, Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even though we own 97.5%, 76.5% and 90%, respectively, of these operations, because we fully consolidate their results in our financial statements. We include 22.5% of production and sales from Antamina, representing our proportionate equity interest in Antamina.
7 Teck Resources Limited 2013 Second Quarter News Release
QUARTER ENDED JUNE, 30
| 2012 | 2012 | 2012 | ||||
| 2013 | 2013 | 2013 | ||||
| Copper Highland Valley Copper Antamina Quebrada Blanca Carmen de Andacollo Duck Pond Other | $ 227 207 137 126 34 - | $ 114 159 49 37 12 (3) | $ 87 153 25 18 6 (3) | |||
| $ 205 | $ 89 | $ 62 | ||||
| 189 | 143 | 128 | ||||
| 127 | 42 | 16 | ||||
| 140 | 52 | 31 | ||||
| 26 | 8 | (1) | ||||
| 6 | 4 | 4 | ||||
| Coal (note 1) Zinc Trail Red Dog Other Inter-segment sales | 731 1,362 434 75 2 (44) | 368 719 (11) 58 3 - | 286 569 (24) 46 3 - | |||
| 693 | 338 | 240 | ||||
| 1,002 | 444 | 277 | ||||
| 408 | 16 | 4 | ||||
| 96 | 68 | 56 | ||||
| 1 | 3 | 3 | ||||
| (50) | - | - | ||||
| Energy | 467 1 | 50 - | 25 - | |||
| 455 | 87 | 63 | ||||
| 2 | 2 | 2 | ||||
| TOTAL | $ 2,561 | $ 1,137 | $ 880 | |||
| $ 2,152 | $ 871 | $ 582 |
(1) Our coal business unit represents our interest in six operating mines. We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal River mines, and have a 95% partnership interest in the Elkview mine and an 80% interest in the Greenhills mine.
8 Teck Resources Limited 2013 Second Quarter News Release
SIX MONTHS ENDED JUNE 30
| 2012 | 2012 | 2012 | |||||
| 2013 | 2013 | 2013 | |||||
| Copper Highland Valley Copper Antamina Quebrada Blanca Carmen de Andacollo Duck Pond Other | $ 447 413 273 281 68 2 | $ 224 312 96 95 22 (3) | $ 177 300 47 55 10 (3) | ||||
| $ 456 | $ 223 | $ 163 | |||||
| 346 | 253 | 225 | |||||
| 209 | 60 | 11 | |||||
| 313 | 131 | 87 | |||||
| 46 | 18 | 3 | |||||
| 7 | 4 | 4 | |||||
| Coal (note 1) Zinc Trail Red Dog Other Inter-segment sales | 1,484 2,560 929 228 4 (99) | 746 1,422 29 134 5 - | 586 1,167 4 110 5 - | ||||
| 1,377 | 689 | 493 | |||||
| 2,062 | 960 | 623 | |||||
| 908 | 57 | 33 | |||||
| 240 | 151 | 127 | |||||
| 3 | 5 | 5 | |||||
| (111 | ) | - | - | ||||
| Energy | 1,062 2 | 168 1 | 119 - | ||||
| 1,040 | 213 | 165 | |||||
| 3 | 3 | 2 | |||||
| TOTAL | $ 5,108 | $ 2,337 | $ 1,872 | ||||
| $ 4,482 | $ 1,865 | $ 1,283 |
(1) Our coal business unit represents our interest in six operating mines. We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal River mines, have a 95% partnership interest in the Elkview mine and an 80% interest in the Greenhills mine.
9 Teck Resources Limited 2013 Second Quarter News Release
COPPER Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended June 30, June 30,
| 2012 | 2012 | |||
| 2013 | 2013 | |||
| Tonnes milled (000's) Copper Grade (%) Recovery (%) Production (000's tonnes) Sales (000's tonnes) Molybdenum Production (million pounds) Sales (million pounds) Cost of sales ($ millions) Operating Distribution Depreciation and amortization Gross profit summary ($ millions) (note 1) Before depreciation and amortization Depreciation and amortization | 11,894 0.28 82.9 27.3 25.6 2.6 2.4 $ 105 $ 8 $ 27 $ 114 (27) | 22,768 0.25 83.9 47.4 48.7 4.8 4.7 $ 207 $ 16 $ 47 $ 224 (47) | ||
| 11,552 | 22,816 | |||
| 0.27 | 0.28 | |||
| 82.3 | 84.6 | |||
| 25.5 | 54.0 | |||
| 24.8 | 56.1 | |||
| 1.5 | 3.4 | |||
| 1.4 | 3.3 | |||
| $ 109 | $ 217 | |||
| $ 7 | $ 16 | |||
| $ 27 | $ 60 | |||
| $ 89 | $ 223 | |||
| (27) | (60) | |||
| After depreciation and amortization | $ 87 | $ 177 | ||
| $ 62 | $ 163 |
(1) Results do not include a provision for the 2.5% non-controlling interest in Highland Valley Copper.
The decline in Highland Valley Copper's second quarter gross profit before depreciation and amortization was primarily due to lower copper prices, reduced molybdenum revenues and slightly lower sales volumes.
Copper production of 25,500 tonnes in the second quarter was 7% lower than a year ago primarily as a result of lower mill throughput and lower ore grades. Production in the quarter and year has been affected by scheduled downtime to tie in components of the mill optimization project to the existing mill. This has also lead to increased costs during these periods.
Capitalized stripping costs in the second quarter of 2013 were $25 million compared with $23 million a year ago.
Molybdenum production declined by 1.1 million pounds, or 42%, compared with the same period a year ago primarily due to lower ore grades.
The mill optimization project is progressing well with construction 52% complete. The new pebble crushing circuit will be connected to the existing grinding lines in the third quarter which
10 Teck Resources Limited 2013 Second Quarter News Release will require a one month shutdown for part of the mill with lower production anticipated. The project is on schedule for completion by the end of 2013. While production will decline in the third quarter as a result of the mill shutdown, we expect to meet our production guidance for the year as the mill is expected to increase throughput and production in the fourth quarter.
Exploration drilling activity in the Bethlehem and Valley pits increased during the quarter with nine drill rigs currently active.
11 Teck Resources Limited 2013 Second Quarter News Release
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended June 30, June 30,
| 2012 | 2012 | |||||
| 2013 | 2013 | |||||
| Tonnes milled (000's) Copper-only ore Copper-zinc ore Copper (note 1) Grade (%) Recovery (%) Production (000's tonnes) Sales (000's tonnes) Zinc (note 1) Grade (%) Recovery (%) Production (000's tonnes) Sales (000's tonnes) Molybdenum Production (million pounds) Sales (million pounds) Cost of sales (US$ millions) Operating Distribution Royalties and other (note 2) Depreciation and amortization Gross profit summary (our 22.5% share) ($ millions) Before depreciation and amortization Depreciation and amortization | 7,796 4,499 | 14,182 8,275 | ||||
| 7,387 | 14,452 | |||||
| 5,037 | 8,302 | |||||
| 12,295 1.01 86.4 106.9 100.6 1.84 79.9 64.2 64.1 3.0 3.2 $ 142 $ 27 $ 47 $ 31 $ 159 (6) | 22,457 1.03 86.5 201.7 194.9 1.85 79.7 123.5 111.6 6.4 7.6 $ 293 $ 51 $ 103 $ 58 $ 312 (12) | |||||
| 12,424 | 22,754 | |||||
| 1.03 | 0.96 | |||||
| 86.5 | 85.3 | |||||
| 106.9 | 184.2 | |||||
| 98.2 | 172.4 | |||||
| 2.22 | 2.28 | |||||
| 85.5 | 85.5 | |||||
| 90.2 | 157.5 | |||||
| 79.1 | 135.6 | |||||
| 2.5 | 4.6 | |||||
| 1.9 | 4.3 | |||||
| $ 149 | $ 280 | |||||
| $ 27 | $ 46 | |||||
| $ 22 | $ 51 | |||||
| $ 64 | $ 120 | |||||
| $ 143 | $ 253 | |||||
| (15 | ) | (28 | ) | |||
| After depreciation and amortization | $ 153 | $ 300 | ||||
| $ 128 | $ 225 |
(1) Copper ore grades and recoveries apply to all of the processed ores. Zinc ore grades and recoveries apply to copper-zinc ores only.
(2) In addition to royalties paid by Antamina, we also pay a royalty in connection with the acquisition of our interest in Antamina equivalent to 7.4% of our share of cash flow distributed by the mine.
The decrease in our 22.5% share of Antamina’s gross profit before depreciation and amortization in the second quarter was primarily due to lower copper prices. Zinc revenues increased as a result of higher sales volumes, offset by the effect of lower molybdenum prices and sales volumes.
12 Teck Resources Limited 2013 Second Quarter News Release