Teck Reports Unaudited Second Quarter Results for 2022 Fourth consecutive record quarter
Teck Resources Limited
TSX: TECK.A, TECK.B NYSE: TECK www.teck.com
News Release
For Immediate Release Date: July 26, 2022 22-47-TR
Teck Reports Unaudited Second Quarter Results for 2022
Fourth consecutive record quarter
Vancouver, B.C. – Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) today announced its unaudited second quarter results for 2022.
“This marks Teck’s fourth consecutive quarter of record-setting EBITDA and profitability, driven by strong commodity prices in the quarter, which enabled us to complete $572 million in share buybacks and pay down a further US$650 million in outstanding debt,” said Don Lindsay, President and CEO. “Our solid operational performance, strong balance sheet and $8.4 billion in liquidity all put Teck on a very strong footing as we manage through inflationary pressures and a slowdown in the global economy.”
Highlights
- Adjusted profit attributable to shareholders1 was a quarterly record $1.8 billion or $3.30 per share in Q2 2022 and more than five times higher than the same period last year.
- Profit attributable to shareholders was a quarterly record of $1.7 billion or $3.12 per share in Q2 2022.
- Adjusted EBITDA1 was a quarterly record $3.3 billion in Q2 2022 and more than three times higher than the same period last year. Profit before tax was a record $2.7 billion in Q2 2022.
- We generated cash flow from operations of $2.9 billion in Q2 2022, purchased US$650 million of our outstanding term notes and ended the quarter with a cash balance of $2.7 billion. As at July 26, 2022, our liquidity is $8.4 billion, including $3.3 billion of cash.
- In Q2 2022, we completed $572 million in Class B subordinate voting share buybacks, including US$436 million ($562 million) of the US$500 million previously announced in April and the remaining $10 million of the $100 million announced in Q1. We also returned $67 million to shareholders through dividends in the second quarter. On July 26, 2022, we declared a $0.125 per share dividend and authorized up to a US$500 million share buyback, in addition to the previously announced buybacks noted above. Additional buybacks will be considered regularly in the context of market conditions at the time.
- At QB2, we now have approximately 13,000 workers on the project and have seen steady progress through the quarter with our focus on system completion and handover, as we continue to target first copper late this year. Our capital cost estimate, before COVID-19 impacts, remains unchanged from our Q3 2021 guidance of US$5.26 billion with up to 5% additional contingency. Our capital cost guidance for COVID-19 impacts has increased to US$1.4—$1.5 billion due to the impact of inflation on labour costs, the ultimate impacts of the Omicron wave experienced in Q1 and ongoing inefficiencies including as a result of COVID-19 related absenteeism, which continues to run approximately 10%. We continue to target first copper from Line 1 in the later part of this year, however, if COVID-19 absenteeism and related vendor specialty craft availability continue into the fourth quarter, this may be delayed into January 2023.
- Our copper business unit gross profit increased 5% from a year ago, supported by an average realized copper price of US$4.28 per pound and copper sales volumes of 75,800 tonnes.
- Our zinc business unit gross profit more than doubled from a year ago, supported by an average realized zinc price of US$1.79 per pound and quarterly zinc in concentrate sales volumes of 55,800 tonnes. In July, we reached a five-year collective agreement at our Trail Operations.
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
All dollar amounts expressed in this news release are in Canadian dollars unless otherwise noted.
Reference: Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis 604.699.4621
Chris Stannell, Public Relations Manager 604.699.4368
Additional corporate information is available at www.teck.com
- Record high realized steelmaking coal prices of US$453 per tonne drove a $2.3 billion gross profit increase in our steelmaking coal business unit, compared to the same period last year. Strong supply chain performance through our upgraded Neptune port enabled the rapid reduction of record-high inventory levels from early 2022, allowing us to capitalize on high steelmaking coal prices in the quarter. As the cornerstone of our supply chain transformation, our upgraded Neptune port supported improved supply chain reliability and resilience, avoiding the potential loss in revenue in excess of $1 billion since July 2021.
- While our underlying key mining drivers remain relatively stable, like others in the industry, we continue to face inflationary cost pressures. Inflationary pressures have increased our operating costs by 14% compared to the same period last year, of which approximately half relates to an increase in diesel costs.
- We set a goal to be a nature positive company by 2030, including through conserving or rehabilitating at least three hectares of land for every one hectare of land affected by our mining operations.
Financial Summary Q2 2022
| Financial Metrics (CAD$ in millions, except per share data) | Q2 2022 | Q2 2021 |
| Revenue Gross profit Gross profit before depreciation and amortization1 Profit before taxes Adjusted EBITDA1 Profit attributable to shareholders Adjusted profit attributable to shareholders1 Basic earnings per share Diluted earnings per share Adjusted basic earnings per share1 Adjusted diluted earnings per share1 | $ 5,787 $ 3,288 $ 3,740 $ 2,663 $ 3,290 $ 1,675 $ 1,772 $ 3.12 $ 3.07 $ 3.30 $ 3.25 | $ 2,558 $ 689 $ 1,059 $ 469 $ 989 $ 260 $ 339 $ 0.49 $ 0.48 $ 0.64 $ 0.63 |
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
Key Updates
Executing on our copper growth strategy – QB2 a long-life, low-cost operation with major expansion potential
- We now have approximately 13,000 workers on the project, despite the impact COVID-19 continues to have on workforce absenteeism;
- Focus continues to be on system completion and handover;
- We have completed construction of the 220kV Transmission System;
- We are continuing sequential energization of electrical substations;
- We have commenced pumping of seawater into the pretreatment area of the desalination plant for commissioning;
- We have completed the starter dam to its design elevation;
- Our capital cost estimate, before COVID-19 impacts, remains unchanged from our Q3 2021 guidance of US$5.26 billion with up to 5% additional contingency;
2 Teck Resources Limited 2022 Second Quarter News Release
- Our capital cost guidance for COVID-19 impacts has increased to US$1.4—$1.5 billion due to the impact of inflation on labour costs, the ultimate impacts of the Omicron wave experienced in Q1 and ongoing inefficiencies including as a result of COVID-19 absenteeism, which continues to run approximately 10%; and
- We continue to target first copper from Line 1 in the later part of this year, however, if COVID-19 absenteeism and related vendor specialty craft availability continue into the fourth quarter, this may be delayed into January 2023.
- Click here for a photo gallery and click here for a video of construction progress on QB2.
Safety and sustainability leadership
- Our High Potential Incident Frequency remained low at a rate of 0.10 in the first half of 2022.
- We announced a Carbon Capture Utilization and Storage pilot project at our Trail Operations, which supports Teck's Net Zero Climate Change Strategy including our goal to reduce the carbon intensity of our operations by 33% by 2030 and achieve net-zero emissions by 2050.
- We were named to the Best 50 Corporate Citizens in Canada ranking as one of the top 50 companies in Canada for corporate citizenship for the 16th consecutive year.
Guidance
- We have updated our 2022 annual guidance for unit costs across our business units, as well as steelmaking coal production volumes, steelmaking coal capital expenditures, and COVID-19 capital cost guidance for QB2, as outlined in summary below. Our usual guidance tables, including threeyear production guidance, can be found on pages 31—35.
- Like others in the industry, we continue to face inflationary cost pressures, which have increased our operating costs by 14% compared to the same period last year, approximately half of which relates to diesel costs at our operations and in our transportation costs. Diesel prices have increased by 75% compared to the same period last year. The increases in the cost of certain key supplies, including mining equipment, fuel, tires and explosives, are being driven largely by price increases for underlying commodities such as steel, crude oil and natural gas. While our underlying key mining drivers remain relatively stable, inflationary pressures on diesel prices and other key input costs, as well as profitbased compensation and royalties continue to put upward pressure on our unit cost guidance through 2022.
3 Teck Resources Limited 2022 Second Quarter News Release
2022 Guidance – Summary Previous Change Current Production Guidance
| Copper (000’s tonnes) | 273 - 290 | — | 273 - 290 |
| Zinc (000’s tonnes) | 630 - 665 | — | 630 - 665 |
| Refined zinc (000’s tonnes) | 270 - 285 | — | 270 - 285 |
Steelmaking coal (million tonnes) 24.5 - 25.5 (1.0) - (1.5) 23.5 - 24.0 Bitumen (million barrels) 12.0 - 14.4 — 12.0 - 14.4
Sales Guidance – Q3 2022
Red Dog zinc in concentrate sales (000’s tonnes) 215 - 240 Steelmaking coal sales (million tonnes) 5.8 - 6.2
Unit Cost Guidance
Copper net cash unit costs (US$/lb.)1 1.40 - 1.50 0.08 - 0.08 1.48 - 1.58 Zinc net cash unit costs (US$/lb.)1 0.32 - 0.38 0.05 - 0.05 0.37 - 0.43 Steelmaking coal adjusted site cash cost of sales (CAD$/tonne)1 79 - 83 8 - 9 87 - 92 Steelmaking coal transportation costs (CAD$/tonne) 43 - 46 — 43 - 46 Bitumen adjusted operating costs (CAD$/barrel)1 28 - 32 5 - 4 33 - 36
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
4 Teck Resources Limited 2022 Second Quarter News Release
Management's Discussion and Analysis
This management’s discussion and analysis is dated as at July 26, 2022 and should be read in conjunction with the unaudited consolidated financial statements of Teck Resources Limited (“Teck”) and the notes thereto for the three and six months ended June 30, 2022 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2021. 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, 2021, 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
- The Board of Directors of Teck announced today that – as the culmination of a multi-year succession process – Don Lindsay has informed them of his intention to retire as President and CEO of Teck effective as of September 30, 2022. Teck’s Board has unanimously appointed Jonathan Price to succeed Don as Chief Executive Officer and Harry “Red” Conger as President and Chief Operating Officer, also effective September 30, 2022. Mr. Price and Mr. Conger will also be appointed to the Board. Crystal Prystai, currently Vice President and Corporate Controller, will serve as interim Chief Financial Officer, effective immediately, while a search to identify a new CFO is undertaken.
- Profitability in the second quarter improved significantly from a year ago primarily due to continued record high steelmaking coal prices and, to a lesser extent, increased sales volumes across our business units and the weakening of the Canadian dollar. These items were partially offset by an increase in unit operating costs primarily due to higher diesel costs, profit-based compensation and royalties, and inflationary cost pressures on consumables.
- Copper prices in the second quarter declined from the all-time quarterly record in the first quarter and were slightly lower than the same period last year at an average of US$4.32 per pound. Zinc prices averaged US$1.78 per pound in the second quarter, an increase of 35% from the same period a year ago. WTI oil prices remained at high levels due to the impact of the ongoing Russian war in Ukraine. Realized blended bitumen prices were US$98 per barrel in the second quarter, up 72% from the same period a year ago.
- Realized steelmaking coal prices in the second quarter reached an all-time record high of US$453 per tonne, more than triple the same period last year. FOB Australia prices continued to increase in the second quarter and reached record levels, though they have since declined from these peak levels.
| Average Prices and Exchange Rates | Three months ended June 30, | Change | |
|---|---|---|---|
| 2022 | 2021 |
| Copper (LME cash – US$/pound) | $ | 4.32 $ | 4.40 | (2) % |
| Zinc (LME cash – US$/pound) | $ | 1.78 $ | 1.32 | 35 % |
| Steelmaking coal (realized US$/tonne) | $ | 453 $ | 144 | 215 % |
| Blended bitumen (realized US$/barrel) | $ | 98.42 $ | 57.18 | 72 % |
| Average exchange rate (CAD$ per US$1.00) | $ | 1.28 $ | 1.23 | 4 % |
- Copper sales volumes in the second quarter were 15% higher than the same period last year partly due to the timing of shipments that shifted to the second quarter from the third quarter. Zinc in
5 Teck Resources Limited 2022 Second Quarter News Release concentrate sales volumes increased 23% compared to the same period last year with strong second quarter sales volumes at Red Dog, as anticipated in our previously disclosed guidance. Steelmaking coal sales volumes of 6.3 million tonnes were similar to a year ago and within our previously disclosed guidance range for the second quarter.
- Like others in the industry, we continue to face inflationary cost pressures, which have increased our operating costs by 14% compared to the same period last year, approximately half of which relates to diesel costs at our operations and in our transportation costs. Diesel prices have increased by 75% compared to the same period last year. The increase in the cost of certain key supplies, including mining equipment, fuel, tires and explosives, is being driven largely by price increases for underlying commodities such as steel, crude oil and natural gas. While our underlying key mining drivers remain relatively stable, inflationary pressures on diesel prices and other key input costs, as well as profitbased compensation and royalties continue to put upward pressure on our unit cost guidance through 2022.
- In Q2 2022, we returned $67 million to shareholders through dividends. We also completed $572 million in Class B subordinate voting share buybacks, including US$436 million ($562 million) of the US$500 million previously announced in April and the remaining $10 million of the $100 million announced in Q1. Since the beginning of 2022, we have returned $404 million to shareholders through dividends and completed $662 million in Class B subordinate voting share buybacks. On July 26, 2022, we declared a $0.125 per share dividend and authorized up to a US$500 million share buyback, in addition to the previously announced buybacks noted above. We will continue to regularly consider additional buybacks in the context of market conditions at the time.
Profit Attributable to Shareholders and Adjusted Profit Attributable to Shareholders
In the second quarter, profit attributable to shareholders was $1.7 billion, or $3.12 per share, compared to $260 million, or $0.49 per share, in the same period last year. The increase in profit compared to the same period last year is due to the reasons outlined above.
Adjusted profit attributable to shareholders1 in the second quarter, taking into account the items identified in the table below, was $1.8 billion, or $3.30 per share, compared with $339 million, or $0.64 per share, in the second quarter of 2021. The most significant second quarter adjustments to profit, reflected in the table below, are an after-tax gain of $51 million primarily relating to an increase in the rates used to discount our decommissioning and restoration provisions for closed operations, $23 million in inventory write-downs at our Trail operations due to a decrease in zinc prices at the end of the second quarter and a $46 million loss on the purchase of outstanding notes in the quarter. In addition, we recorded $37 million in after-tax expenses as a result of the impact of interest rate changes on the valuation of the preferential dividend on the shares in the QB2 project company held by ENAMI.
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| (CAD$ in millions) | Three months ended June 30, | Six months ended June 30, |
| 2022 2021 | 2022 2021 |
Profit attributable to shareholders $ 1,675 $ 260 $ 3,246 $ 565 Add (deduct) on an after-tax basis:
| Loss on debt purchase | 46 | — | 46 | — | |
| QB2 variable consideration to IMSA and ENAMI | 37 | 13 | 96 | 43 | |
| Environmental costs | (51) | 44 | (111) | 11 | |
| Inventory write-downs (reversals) | 23 | — | 23 | (6) | |
| Share-based compensation | 6 | 24 | 88 | 34 | |
| Commodity derivatives | 34 | (20) | (3) | (5) | |
| Other | 2 | 18 | 7 | 23 | |
| Adjusted profit attributable to shareholders1 | $ | 1,772 $ | 339 $ | 3,392 $ | 665 |
| Basic earnings per share | $ | 3.12 $ | 0.49 $ | 6.05 $ | 1.06 |
| Diluted earnings per share | $ | 3.07 $ | 0.48 $ | 5.94 $ | 1.05 |
| Adjusted basic earnings per share1 | $ | 3.30 $ | 0.64 $ | 6.33 $ | 1.25 |
| Adjusted diluted earnings per share1 | $ | 3.25 $ | 0.63 $ | 6.21 $ | 1.23 |
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
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 $187 million of after-tax losses ($297 million, before tax) in the second quarter, or $0.35 per share.
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| FINANCIAL OVERVIEW (CAD$ in millions, except per share data) | Three months ended Six months ended June 30, June 30, | |
|---|---|---|
| 2022 | 2021 2022 2021 |
Revenue and profit
| Revenue | $ | 5,787 $ | 2,558 $ 10,819 $ | 5,105 | |
| Gross profit | $ | 3,288 $ | 689 $ | 5,856 $ | 1,343 |
| Gross profit before depreciation and amortization1 | $ | 3,740 $ | 1,059 $ | 6,757 $ | 2,091 |
| Profit before taxes | $ | 2,663 $ | 469 $ | 5,113 $ | 970 |
| Adjusted EBITDA1 | $ | 3,290 $ | 989 $ | 6,334 $ | 1,956 |
| Profit attributable to shareholders | $ | 1,675 $ | 260 $ | 3,246 $ | 565 |
Cash flow
| Cash flow from operations | $ | 2,921 $ | 575 $ | 5,244 $ | 1,160 |
| Property, plant and equipment expenditures | $ | 1,091 $ | 1,048 $ | 1,958 $ | 1,917 |
| Capitalized stripping costs | $ | 255 $ | 175 $ | 488 $ | 309 |
| Investments | $ | 87 $ | 50 $ | 126 $ | 94 |
Balance Sheet
Cash balances $ 2,702 $ 312 Total assets $ 49,635 $ 42,779 Debt and lease liabilities, including current portion $ 7,534 $ 7,892
Per share amounts
| Basic earnings per share | $ | 3.12 $ | 0.49 $ | 6.05 $ | 1.06 |
| Diluted earnings per share | $ | 3.07 $ | 0.48 $ | 5.94 $ | 1.05 |
| Dividends declared per share | $ | 0.125 $ | 0.05 $ | 0.75 $ | 0.10 |
PRODUCTION, SALES AND PRICES Production (000’s tonnes, except steelmaking coal and bitumen)
| Copper2 | 72 | 72 | 139 | 144 |
| Zinc in concentrate | 165 | 168 | 323 | 314 |
| Zinc – refined | 70 | 64 | 139 | 138 |
| Steelmaking coal (million tonnes) | 5.3 | 6.4 | 10.9 | 12.3 |
| Bitumen (million barrels)2 | 3.1 | 1.6 | 6.2 | 3.4 |
Sales (000’s tonnes, except steelmaking coal and blended bitumen)
| Copper2 | 76 | 66 | 145 | 133 |
| Zinc in concentrate | 80 | 65 | 249 | 196 |
| Zinc – refined | 67 | 69 | 136 | 139 |
| Steelmaking coal (millions tonnes) | 6.3 | 6.2 | 12.3 | 12.4 |
| Blended bitumen (million barrels)2 | 4.1 | 2.2 | 8.3 | 4.5 |
Average prices and exchange rates
| Copper (LME cash – US$/pound) | $ | 4.32 $ | 4.40 $ | 4.43 $ | 4.12 |
| Zinc (LME cash – US$/pound) | $ | 1.78 $ | 1.32 $ | 1.74 $ | 1.28 |
| Steelmaking coal (realized US$/tonne) | $ | 453 $ | 144 $ | 406 $ | 138 |
| Blended bitumen (realized US$/barrel) | $ | 98.42 $ | 57.18 $ | 89.91 $ | 52.24 |
| Average exchange rate (CAD$ per US$1.00) | $ | 1.28 $ | 1.23 $ | 1.27 $ | 1.25 |
Notes:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
2. We include 100% of production and sales from our Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even though we do not own 100% of these operations, because we fully consolidate their results in our financial statements. We include 22.5% and 21.3% of production and sales from Antamina and Fort Hills, respectively, representing our proportionate ownership interest in these operations.
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BUSINESS UNIT RESULTS
Our revenue, gross profit, and gross profit before depreciation and amortization1 by business unit are summarized in the table below.
Three months ended Six months ended June 30, June 30, (CAD$ in millions) 2022 2021 2022 2021
Revenue
| Copper | $ | 973 $ | 821 $ | 1,903 $ | 1,588 |
| Zinc | 633 | 461 | 1,553 | 1,031 | |
| Steelmaking coal | 3,694 | 1,112 | 6,460 | 2,159 | |
| Energy | 487 | 164 | 903 | 327 | |
| Total | $ | 5,787 $ | 2,558 $ 10,819 $ | 5,105 |
Gross profit (loss)
| Copper | $ | 450 $ | 429 $ | 901 $ | 795 |
| Zinc | 156 | 61 | 403 | 186 | |
| Steelmaking coal | 2,536 | 233 | 4,316 | 429 | |
| Energy | 146 | (34) | 236 | (67) | |
| Total | $ | 3,288 $ | 689 $ | 5,856 $ | 1,343 |
Gross profit (loss) before depreciation
and amortization1
| Copper | $ | 559 $ | 518 $ | 1,115 $ | 980 |
| Zinc | 194 | 96 | 499 | 267 | |
| Steelmaking coal | 2,806 | 457 | 4,838 | 869 | |
| Energy | 181 | (12) | 305 | (25) | |
| Total | $ | 3,740 $ | 1,059 $ | 6,757 $ | 2,091 |
Gross profit (loss) margins before depreciation
and amortization1
| Copper | 57 % | 63 % | 59 % | 62 % |
| Zinc | 31 % | 21 % | 32 % | 26 % |
| Steelmaking coal | 76 % | 41 % | 75 % | 40 % |
| Energy | 37 % | (7) % | 34 % | (8) % |
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
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COPPER BUSINESS UNIT
Three months ended Six months ended June 30, June 30,
| (CAD$ in millions) | 2022 | 2021 | 2022 | 2021 | |
| Copper price (realized – US$/pound) | $ | 4.28 $ | 4.39 $ | 4.39 $ | 4.14 |
| Production (000’s tonnes)1 | 72 | 72 | 139 | 144 | |
| Sales (000’s tonnes)1 | 76 | 66 | 145 | 133 | |
| Gross profit | $ | 450 $ | 429 $ | 901 $ | 795 |
| Gross profit, before depreciation and amortization2 | $ | 559 $ | 518 $ | 1,115 $ | 980 |
| Property, plant and equipment expenditures | $ | 912 $ | 725 $ | 1,632 $ | 1,288 |
Notes:
1. We include 22.5% of production and sales from Antamina, representing our proportionate ownership interest in this operation. We include 100% of production and sales from our Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even though we do not own 100% of these operations, because we fully consolidate their results in our financial statements.
2. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
Performance
Gross profit from our copper business unit was $450 million in the second quarter compared with $429 million a year ago. Gross profit increased by $21 million compared with a year ago (see table below) primarily due to a 15% increase in sales volumes as a result of the timing of shipments, as well as higher contributions from by-products and the impact of the weakening Canadian dollar. These items were partially offset by higher unit operating costs and lower copper prices, compared to the same period last year.
Copper production of 71,500 tonnes in the second quarter was similar to a year ago, with increased production from Antamina offset by lower production from our Highland Valley Copper and Quebrada Blanca cathode operations, as outlined below.
The table below summarizes the change in gross profit in our copper business unit for the quarter:
Three months ended Gross Profit (CAD$ in millions) June 30,
As reported in the second quarter of 2021 $ 429 Increase (decrease):
Copper price realized (20) Sales volumes 68 Unit operating costs (53) Labour settlement (8) Co-product and by-product contribution 27 Foreign exchange (CAD$/US$) 27 Depreciation (20)
Net increase $ 21 As reported in current quarter $ 450
10 Teck Resources Limited 2022 Second Quarter News Release Property, plant and equipment expenditures in the second quarter totalled $912 million, including $52 million for sustaining capital and $819 million for project development expenditures for QB2. Capitalized stripping costs were $75 million in the second quarter, $23 million higher than a year ago, as expected in the Antamina and Highland Valley Copper mine plans.
Markets
Second quarter LME copper prices remained well above historic averages despite declining towards the end of the quarter. Prices averaged US$4.32 per pound in the second quarter, 1.9% lower than the second quarter 2021 average of US$4.40 per pound and down 4.8% from the first quarter 2022 record high of US$4.53 per pound. Global demand for copper came under pressure in the second quarter, as COVID-19 lockdowns in China kept manufacturing, construction and consumer demand constrained. The Russian war in Ukraine also had an impact on automotive and manufacturing production in Europe, which is reliant on semi-fabricated goods out of that region. LME copper prices were weak towards the end of the quarter despite lower mine production out of South America, continued logistics constraints and low metal inventories. Global stocks of copper cathode on exchanges around the world remain below historic levels at 3.8 days of global consumption compared to the long-term average of 11.0 days of global consumption.
Tightness in the copper concentrate market eased in the second quarter, with spot treatment charges rising above 2022 annual contract terms early in the quarter. Several Chinese smelters scheduled maintenance or faced operational challenges during the quarter, pushing additional concentrates into the market. Copper prices on the London Metals Exchange remained above domestic Chinese prices on the Shanghai Futures Exchange (SHFE) for most of the second quarter, making imported material into China less desirable. Towards the end of the second quarter, the Chinese smelters under maintenance returned to production and COVID-19 lockdowns were relaxed while the LME price fell faster than the SHFE price, closing the arbitrage gap. With smelter demand returning and the arbitrage gap closing, concentrate imports into China rose 13% in May and are now up 6% year to date. Mine production in South America continued to struggle during the quarter with combined Chilean and Peruvian production down 4.5% year to date to May. South American mine production still has not returned to pre-COVID-19 levels with combined year to date production down 8.4% compared to 2019.
Operations
Highland Valley Copper
Copper production of 31,000 tonnes in the second quarter was 2,400 tonnes lower than a year ago, due to reduced mill throughput, partly offset by improved mill recoveries. Mill throughput was impacted by harder ore, as expected in the mine plan, as well as primary mill production time. Second quarter molybdenum production of 63,000 pounds was approximately 80% lower than a year ago, primarily due to downtime in the molybdenum leach circuit. Molybdenum production in the third quarter of 2022 is expected to increase as the inventory of unleached material is processed.
Operating costs, before changes in inventory, were $180 million in the second quarter, $19 million higher than a year ago. The increase was primarily due to higher consumables costs, most notably diesel, as well as labour costs.
Antamina
Copper production (100% basis) of 121,800 tonnes in the second quarter was 11,000 tonnes higher than a year ago, primarily due to higher copper feed grades. The mix of mill feed in the quarter was 57% copperonly ore and 43% copper-zinc ore, compared with 52% copper-only ore and 48% copper-zinc ore, respectively, a year ago. Zinc production (100% basis) of 97,100 tonnes in the second quarter decreased by 27,500 tonnes from a year ago primarily due to lower zinc-grade copper-zinc ore processed.
Operating costs, before changes in inventory, were US$91 million (22.5% share) in the second quarter, US$12 million higher than a year ago. The increase was primarily due to higher consumables costs, particularly diesel.
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Carmen de Andacollo
Copper production of 10,700 tonnes in the second quarter was similar to a year ago, with lower mill recoveries offset by higher mill throughput.
Operating costs before changes in inventory in the second quarter of US$61 million were US$8 million higher than a year ago, primarily due to a one-time labour settlement cost of US$6 million associated with the new three-year collective agreement settled in June.
Quebrada Blanca
Copper cathode production of 2,400 tonnes in the second quarter was 600 tonnes lower than a year ago as expected in the production plan. In the second quarter, mined ore was introduced to the leach piles for the first time since 2018 and is expected to result in higher copper production through the second half of 2022.
Operating costs before changes in inventory in the second quarter were US$26 million, US$9 million higher than a year ago, primarily due to the reintroduction of mining activities.
Cost of Sales
Cost of sales was $523 million in the second quarter compared with $392 million in the same period last year. Total cash unit costs1 of product sold in the second quarter, before cash margins for by-products1, of US$2.03 per pound were US$0.23 per pound higher than the same period a year ago. This was primarily due to higher consumables costs, particularly diesel, as well as transportation costs. Cash margins for byproducts1 were US$0.49 per pound compared with US$0.43 per pound in the same period a year ago due to substantially higher zinc prices.
| Three months ended Six months ended June 30, June 30, | |
| (amounts reported in US$ per pound) 2022 2021 2022 2021 |
| Adjusted cash cost of sales1 | $ | 1.86 $ | 1.64 $ | 1.81 $ | 1.61 |
| Smelter processing charges | 0.17 | 0.16 | 0.17 | 0.16 | |
| Total cash unit costs1 | $ | 2.03 $ | 1.80 $ | 1.98 $ | 1.77 |
| Cash margin for by-products1 | (0.49) | (0.43) | (0.50) | (0.39) | |
| Net cash unit costs1 | $ | 1.54 $ | 1.37 $ | 1.48 $ | 1.38 |
Outlook
Annual 2022 guidance for our copper business unit has been revised from our previous disclosures and is outlined in our guidance tables on pages 31—35. Our 2022 annual production guidance for our copper business unit is unchanged from our previous disclosures. We now expect 2022 net cash unit costs to be between US$1.48 and US$1.58 per pound, compared to our previously disclosed guidance of US$1.40 and US$1.50 per pound. The increase in guidance is due to sustained inflationary cost pressures on key supplies, particularly diesel, and lower by-product price forecasts, resulting in lower expected by-product credits.
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
12 Teck Resources Limited 2022 Second Quarter News Release