Teck Reports Unaudited Third Quarter Results for 2022 Progressing copper growth and delivering strong financial results
Teck Resources Limited
TSX: TECK.A, TECK.B NYSE: TECK www.teck.com
News Release
For Immediate Release Date: October 26, 2022 22-58-TR
Teck Reports Unaudited Third Quarter Results for 2022
Progressing copper growth and delivering strong financial results
Vancouver, B.C. – Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (Teck) today announced its unaudited third quarter results for 2022.
“In the third quarter, we delivered another consecutive quarter of strong financial results, while returning cash to shareholders and maintaining a robust balance sheet. We also recently announced three value generating transactions that advance our strategy of pursuing industry-leading copper growth and rebalancing our portfolio of high-quality assets to low carbon metals," said Jonathan Price, Chief Executive Officer. "Thanks to our resilience and financial strength, we remain well-positioned to manage through any near-term pressures arising from an overall economic slowdown, while staying focused on advancing our copper growth strategy and returning cash to shareholders."
Highlights
- Adjusted profit attributable to shareholders1 was $923 million or $1.77 per share in Q3 2022.
- Our strong financial results in Q3 2022 were offset by the impairment of our interest in Fort Hills, described below, and as a result, we recorded a loss attributable to shareholders of $195 million or $0.37 per share.
- On October 26, 2022, we announced an agreement to sell our 21.3% interest in the Fort Hills Energy Limited Partnership (Fort Hills) and certain associated downstream assets to Suncor Energy Inc. (Suncor) for gross proceeds of approximately $1 billion in cash, subject to customary closing adjustments reflecting a November 1, 2022 effective date. The transaction value is consistent with the current outlook for the Fort Hills business reflected in the most recent in-depth review of Fort Hills conducted by Suncor and the resulting long-range plan for the project. As a result of the sale agreement, we recorded an after-tax, non-cash impairment charge of $952 million in the third quarter of 2022.
- Adjusted EBITDA1 was $1.9 billion in Q3 2022. We recorded a loss before taxes of $76 million in Q3 2022. Over the last twelve months we have generated $10.8 billion in adjusted EBITDA1 and $7.2 billion of profit before taxes.
- In Q3 2022, we completed $730 million (US$564 million) in Class B subordinate voting share buybacks pursuant to our normal course issuer bid. We also returned $64 million to shareholders in Q3 through our regular quarterly base dividend.
- At QB2, we continue to focus on system completion and handover to support pre-operation and commissioning work, with a focus on the sub-systems required to produce first copper from Line 1, which we continue to target for late this year. However, if productivity impacts persist this will be delayed into January 2023.
- Our revised QB2 capital cost guidance is US$7.4 to US$7.75 billion based on our current foreign exchange assumptions, cost pressures related to weather and subsurface conditions, COVID-19 impacts and other factors. This is an increase from our prior guidance of US$6.9 to US$7.0 billion.
- Executing on our copper growth strategy, in Q3 2022, we announced agreements with PolyMet Mining Corporation (PolyMet) to advance PolyMet's NorthMet Project and our Mesaba mineral deposit in a 50:50 joint venture, and with Agnico Eagle Mines Limited to form a 50:50 joint venture to advance the San Nicolás copper-zinc project.
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
- Our copper business unit gross profit declined by 50% from a year ago, primarily due to an 18% decrease in average realized copper prices to US$3.49 per pound and a 12% decrease in sales volumes to 67,300 tonnes due to the timing of shipments.
- Our zinc business unit gross profit increased 9% from a year ago primarily reflecting a 45% increase in zinc sales volumes of 235,200 tonnes from Red Dog, and a 6% increase in average realized zinc prices of US$1.44 per pound.
- Our steelmaking coal business unit gross profit increased by 37% from a year ago primarily as a result of favourable steelmaking coal prices. Realized steelmaking coal prices averaged US$304 per tonne in Q3 and sales volumes were 5.6 million tonnes. Our significant investment in Neptune Bulk Terminals materially reduced the impact that the recently-resolved labour action at Westshore Terminals would otherwise have had on our Q3 steelmaking coal sales volumes.
- 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, approximately half of which relates to an increase in diesel costs.
- In late September, our Elkview steelmaking coal operation experienced a structural failure of its plant feed conveyor and as a result, we estimate a reduction in our 2022 steelmaking coal production of approximately 1.5 million tonnes. We have substantially completed the sourcing of materials and labour to conduct the replacement and expect the Elkview plant to restart production in late November.
- Our liquidity is strong at $8.3 billion as at October 26, 2022, including $2.9 billion of cash. Our US$4.0 billion sustainability-linked revolving credit facility is undrawn, and there are no major debt maturities until 2030.
Financial Summary Q3 2022
| Financial Metrics (CAD$ in millions, except per share data) | Q3 2022 | Q3 2021 |
| Revenue Gross profit Gross profit before depreciation and amortization1 Profit (loss) before taxes Adjusted EBITDA1 Profit (loss) attributable to shareholders Adjusted profit attributable to shareholders1 Basic earnings (loss) per share Diluted earnings (loss) per share Adjusted basic earnings per share1 Adjusted diluted earnings per share1 | $ 4,669 $ 1,881 $ 2,374 $ (76) $ 1,901 $ (195) $ 923 $ (0.37) $ (0.37) $ 1.77 $ 1.74 | $ 3,970 $ 1,662 $ 2,093 $ 1,354 $ 2,096 $ 816 $ 1,015 $ 1.53 $ 1.51 $ 1.91 $ 1.88 |
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
- Focus continues to be on sub-system handover and pre-operational testing across all areas.
- Completed commissioning of the 220kV transmission line and final testing of the main sub-station switchgear at the Concentrator.
2 Teck Resources Limited 2022 Third Quarter News Release
- Well advanced in commissioning of the pre-treatment area of the desalination plant and well advanced in pre-operational testing of the reverse osmosis units in the desalination plant.
- Completed hydrotests of the water supply pipeline and hydrotesting of the pump stations where preoperational testing is underway.
- All sub-systems for Ball Mill No. 1 and SAG Mill No. 1 are in in pre-operational testing.
- Completed the ore stockpile dome and installation of all the in-plant conveyor belts.
- Completed the 12km long tailings launder and commenced hydrotesting of the water pipelines in the tailings management facility.
- Click here for a photo gallery and click here for a video of construction progress on QB2.
Steelmaking Coal Strategy
- Our annual steelmaking coal production capacity across our four operating mines in the Elk Valley is approximately 26 to 27 million tonnes, and we operated at those levels for most of the period from 2014 to 2019. Over the past three years, external challenges, and more recently, reliability issues at Elkview, have impacted our ability to operate at those levels. These include severe weather-related events including rain, flooding, extreme cold and wildfire events in 2021, and the COVID-19 pandemic and associated ongoing global disruption to supply chains and labour availability. As a result, to better reflect the increasing frequency of these adverse events and associated risk of impacts to our operations we have reduced our three-year production guidance commencing in 2023 from 26 to 27 million tonnes to 25 to 26 million tonnes.
Safety and sustainability leadership
- Our High Potential Incident Frequency remained low at a rate of 0.10 year to date in 2022.
- We announced a $5 million investment to expand our partnership with UN Women, providing economic empowerment and training for Indigenous women and youth in northern Chile.
- We recently reached an agreement with SAAM Towage to deploy two electric tug boats at Neptune Bulk Terminals, which will reduce transportation-related greenhouse gas emissions and will mark the first electric tugs operating in Canada.
Guidance
- We have updated our 2022 annual guidance for steelmaking coal production volumes to reflect the impact of the plant feed conveyor failure at Elkview, outlined above. We have also updated our 2022 annual guidance for transportation unit costs1 for our steelmaking coal business unit, our copper and refined zinc production guidance, and our capital cost guidance for QB2, as outlined in summary below. Our usual guidance tables, including three-year production guidance, can be found on pages 31—36.
- QB2 copper production is expected to ramp up during 2023 following commissioning of the QB2 project. We now expect copper production to be in the range of 170,000 and 300,000 tonnes per year for 2023 to 2025, from the previously disclosed range of 245,000 to 300,000 tonnes per year, with 2023 at the lower end of the guidance range.
3 Teck Resources Limited 2022 Third Quarter News Release
- 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 the operating cost increase relates to diesel costs at our operations and in our transportation costs. 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 such as strip ratios and haul distances remain relatively stable, inflationary pressures on diesel prices and other key input costs, as well as profit-based compensation and royalties continue to put upward pressure on our unit cost1 guidance through the balance of 2022.
- As a result of the agreement to sell our interest in Fort Hills to Suncor with an effective date of November 1, 2022, we will no longer provide guidance for our Energy Business Unit. We expect the results from our interest in Fort Hills to be reported as a discontinued operation beginning in the fourth quarter of 2022.
- While we continue to expect our capital expenditures for 2023 to be lower than 2022, with the increase in QB2 capital guidance and continued inflationary pressures, we no longer expect a reduction of $2 billion compared to 2022 projected spending levels. We will issue 2023 capital expenditure guidance with our usual annual guidance in February, 2023.
| 2022 Guidance – Summary | Previous | Change | Current |
| Production Guidance Copper (000’s tonnes) Zinc (000’s tonnes) Refined zinc (000’s tonnes) Steelmaking coal (million tonnes) Sales Guidance – Q4 2022 Red Dog zinc in concentrate sales (000’s tonnes) Steelmaking coal sales (million tonnes) Unit Cost Guidance Copper net cash unit costs (US$/lb.)1 Zinc net cash unit costs (US$/lb.)1 Steelmaking coal adjusted site cash cost of sales (CAD$/tonne)1 Steelmaking coal transportation costs (CAD$/tonne) | 273 - 290 — 273 - 290 630 - 665 — 630 - 665 270 - 285 (13) - (18) 257 - 267 23.5 - 24.0 (1.5) - (1.5) 22.0 - 22.5 130 - 150 5.0 - 5.4 1.48 - 1.58 — 1.48 - 1.58 0.37 - 0.43 — 0.37 - 0.43 87 - 92 — 87 - 92 43 - 46 3 - 3 46 - 49 |
4 Teck Resources Limited 2022 Third Quarter News Release
Management's Discussion and Analysis
This management’s discussion and analysis is dated as at October 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 nine months ended September 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
- Our profitability declined in the third quarter as compared with a year ago primarily due to weaker copper prices, a decrease in copper and steelmaking coal sales volumes, and an increase in unit operating costs1. These decreases were partially offset by an increase in steelmaking coal prices compared to the same period last year, and to a lesser extent, increased zinc concentrate sales and realized zinc prices and the positive impact of a stronger U.S. dollar on our financial results.
- As a result of declining copper and steelmaking coal prices in the third quarter, we recorded significant negative pricing adjustments. Declining steelmaking coal and copper prices in the third quarter resulted in negative after-tax pricing adjustments of $205 million compared with positive after-tax pricing adjustments of $73 million a year ago.
- Base metal prices were mixed in the third quarter, with LME copper prices declining by 17% compared with a year ago and averaging US$3.51 per pound in the third quarter, and LME zinc prices increasing by 9% and averaging US$1.48 per pound in the third quarter. Realized steelmaking coal prices in the third quarter declined from record high levels earlier in 2022 but remained high, averaging US$304 per tonne, up 28% from the third quarter 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$74 per barrel in the third quarter, up 21% from the same period a year ago.
| Average Prices and Exchange Rates | Three months ended September 30, | Change | |
|---|---|---|---|
| 2022 | 2021 |
| Copper (LME cash – US$/pound) | $ | 3.51 $ | 4.25 | (17) % |
| Zinc (LME cash – US$/pound) | $ | 1.48 $ | 1.36 | 9 % |
| Steelmaking coal (realized US$/tonne) | $ | 304 $ | 237 | 28 % |
| Average exchange rate (CAD$ per US$1.00) | $ | 1.31 $ | 1.26 | 4 % |
5 Teck Resources Limited 2022 Third Quarter News Release
- Copper sales volumes in the third quarter decreased by 12% from the same period a year ago due to the timing of shipments, as a shipment from Highland Valley Copper shifted from the third quarter to the second quarter earlier this year. Zinc in concentrate sales volumes increased 39% compared to the same period last year, consistent with our previously disclosed guidance for Red Dog. Sales volumes from Red Dog last year were impacted by a late start of the shipping season due to adverse weather conditions. Steelmaking coal sales volumes of 5.6 million tonnes were 5% lower than a year ago, due in part to the Elkview plant feed conveyor failure and to the recently-resolved labour disruption at Westshore Terminals, and within our previously disclosed guidance range for the third quarter.
- Although we remain highly focused on managing our controllable operating expenditures, we continue to experience higher inflationary cost pressures across our business units, which impacted results in the third quarter. Our operating costs increased by 14% compared to the same period last year. Approximately half of the increase in operating costs relates to diesel costs at our operations and in our transportation costs. 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 profit-based compensation and royalties continue to put upward pressure on our unit cost guidance through 2022.
- While we continue to expect our capital expenditures for 2023 to be lower than 2022, with the increase in QB2 capital guidance and continued inflationary pressures, we no longer expect a reduction of $2 billion compared to 2022 projected spending levels. We will issue 2023 capital expenditure guidance with our usual annual guidance in February, 2023.
- In Q3 2022, we purchased $730 million (US$564 million) in Class B subordinate voting shares pursuant to our normal course issuer bid and returned $64 million to shareholders through dividends. Since the beginning of 2022, we have returned $468 million to shareholders through dividends and completed $1.4 billion in Class B subordinate voting share buybacks. We will continue to regularly consider additional buybacks in the context of market conditions at the time.
- On October 26, 2022, we announced an agreement to sell our 21.3% interest in the Fort Hills Energy Limited Partnership (Fort Hills) and certain associated downstream assets to Suncor Energy Inc. (Suncor) for gross proceeds of approximately $1 billion in cash, subject to customary closing adjustments and reflecting a November 1, 2022 effective date. The transaction value is consistent with the current outlook for the Fort Hills business reflected in the most recent in-depth review of Fort Hills conducted by Suncor and the resulting long-range plan for the project. Closing of the transaction is subject to customary conditions including receipt of relevant regulatory approvals, and is expected to occur in the first quarter of 2023. As a result of the sale agreement, we recorded an after-tax, non-cash impairment charge of $952 million in the third quarter of 2022.
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Profit (Loss) Attributable to Shareholders and Adjusted Profit Attributable to Shareholders
In the third quarter, loss attributable to shareholders was $195 million, or $0.37 per share, compared to profit of $816 million, or $1.53 per share, in the same period last year. In the third quarter, we recorded an after-tax, non-cash impairment charge of $952 million on our interest in Fort Hills, noted above. The decrease in profit compared to the same period last year is due to the reasons outlined above.
Adjusted profit attributable to shareholders1 in the third quarter, taking into account the items identified in the table below, was $923 million, or $1.77 per share, compared with $1.0 billion, or $1.91 per share, in the third quarter of 2021. The most significant third quarter adjustments to profit, reflected in the table below, are the after-tax impairment charge, outlined above, $45 million of foreign exchange losses and $26 million of share-based compensation expense. In addition, we recorded $43 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 and a $31 million after-tax gain in the derivative financial liability that arose from our 2018 acquisition of an additional 13.5% interest in Compañia Minera Teck Quebrada Blanca.
| (CAD$ in millions) | Three months ended September 30, | Nine months ended September 30, |
| 2022 2021 | 2022 2021 |
Profit (loss) attributable to shareholders $ (195) $ 816 $ 3,051 $ 1,381 Add (deduct) on an after-tax basis:
| Asset impairment | 952 | — | 952 | — | |
| Loss on debt purchase | — | — | 46 | — | |
| QB2 variable consideration to IMSA and ENAMI | 12 | 97 | 108 | 140 | |
| Environmental costs | 7 | 49 | (104) | 60 | |
| Inventory write-downs (reversals) | 15 | — | 38 | (6) | |
| Share-based compensation | 26 | 28 | 114 | 62 | |
| Commodity derivatives | (4) | 10 | (7) | 5 | |
| Other | 110 | 15 | 117 | 38 | |
| Adjusted profit attributable to shareholders1 | $ | 923 $ | 1,015 $ | 4,315 $ | 1,680 |
| Basic earnings (loss) per share | $ | (0.37)$ | 1.53 $ | 5.74 $ | 2.60 |
| Diluted earnings (loss) per share | $ | (0.37)$ | 1.51 $ | 5.64 $ | 2.56 |
| Adjusted basic earnings per share1 | $ | 1.77 $ | 1.91 $ | 8.12 $ | 3.16 |
| Adjusted diluted earnings per share1 | $ | 1.74 $ | 1.88 $ | 7.98 $ | 3.11 |
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 $205 million of after-tax losses ($315 million, before tax) in the third quarter, or $0.39 per share.
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| FINANCIAL OVERVIEW (CAD$ in millions, except per share data) | Three months ended Nine months ended September 30, September 30, | |
|---|---|---|
| 2022 | 2021 2022 2021 |
Revenue and profit
| Revenue | $ | 4,669 $ | 3,970 $ 15,488 $ | 9,075 | |
| Gross profit | $ | 1,881 $ | 1,662 $ | 7,737 $ | 3,005 |
| Gross profit before depreciation and amortization1 | $ | 2,374 $ | 2,093 $ | 9,131 $ | 4,184 |
| Profit (loss) before taxes | $ | (76)$ | 1,354 $ | 5,037 $ | 2,324 |
| Adjusted EBITDA1 | $ | 1,901 $ | 2,096 $ | 8,235 $ | 4,052 |
| Profit (loss) attributable to shareholders | $ | (195)$ | 816 $ | 3,051 $ | 1,381 |
Cash flow
| Cash flow from operations | $ | 1,809 $ | 1,480 $ | 7,053 $ | 2,640 |
| Property, plant and equipment expenditures | $ | 1,140 $ | 1,038 $ | 3,098 $ | 2,955 |
| Capitalized stripping costs | $ | 209 $ | 172 $ | 697 $ | 481 |
| Investments | $ | 38 $ | 40 $ | 164 $ | 134 |
Balance Sheet
Cash balances $ 2,638 $ 390 Total assets $ 50,324 $ 44,936 Debt and lease liabilities, including current portion $ 7,962 $ 7,968
Per share amounts
| Basic earnings (loss) per share | $ | (0.37)$ | 1.53 $ | 5.74 $ | 2.60 |
| Diluted earnings (loss) per share | $ | (0.37)$ | 1.51 $ | 5.64 $ | 2.56 |
| Dividends declared per share | $ | 0.125 $ | 0.05 $ | 0.875 $ | 0.15 |
PRODUCTION, SALES AND PRICES Production (000’s tonnes, except steelmaking coal and bitumen)
| Copper2 | 66 | 71 | 205 | 215 |
| Zinc in concentrate | 184 | 145 | 507 | 459 |
| Zinc – refined | 64 | 73 | 203 | 211 |
| Steelmaking coal (million tonnes) | 5.7 | 6.0 | 16.6 | 18.3 |
| Bitumen (million barrels)2 | 3.5 | 1.9 | 9.7 | 5.3 |
Sales (000’s tonnes, except steelmaking coal and blended bitumen)
| Copper2 | 67 | 76 | 212 | 209 |
| Zinc in concentrate | 262 | 188 | 511 | 384 |
| Zinc – refined | 64 | 72 | 200 | 211 |
| Steelmaking coal (millions tonnes) | 5.6 | 5.9 | 17.9 | 18.3 |
| Blended bitumen (million barrels)2 | 4.5 | 2.2 | 12.8 | 6.7 |
Average prices and exchange rates
| Copper (LME cash – US$/pound) | $ | 3.51 $ | 4.25 $ | 4.11 $ | 4.17 |
| Zinc (LME cash – US$/pound) | $ | 1.48 $ | 1.36 $ | 1.65 $ | 1.31 |
| Steelmaking coal (realized US$/tonne) | $ | 304 $ | 237 $ | 374 $ | 170 |
| Blended bitumen (realized US$/barrel) | $ | 73.68 $ | 61.10 $ | 84.13 $ | 55.24 |
| Average exchange rate (CAD$ per US$1.00) | $ | 1.31 $ | 1.26 $ | 1.28 $ | 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 Nine months ended September 30, September 30, (CAD$ in millions) 2022 2021 2022 2021
Revenue
| Copper | $ | 725 $ | 940 $ | 2,628 $ | 2,528 |
| Zinc | 1,262 | 1,045 | 2,815 | 2,076 | |
| Steelmaking coal | 2,273 | 1,807 | 8,733 | 3,966 | |
| Energy | 409 | 178 | 1,312 | 505 | |
| Total | $ | 4,669 $ | 3,970 $ 15,488 $ | 9,075 |
Gross profit (loss)
| Copper | $ | 250 $ | 504 $ | 1,151 $ | 1,299 |
| Zinc | 311 | 285 | 714 | 471 | |
| Steelmaking coal | 1,236 | 901 | 5,552 | 1,330 | |
| Energy | 84 | (28) | 320 | (95) | |
| Total | $ | 1,881 $ | 1,662 $ | 7,737 $ | 3,005 |
Gross profit (loss) before depreciation
and amortization1
| Copper | $ | 358 $ | 610 $ | 1,473 $ | 1,590 |
| Zinc | 416 | 366 | 915 | 633 | |
| Steelmaking coal | 1,481 | 1,120 | 6,319 | 1,989 | |
| Energy | 119 | (3) | 424 | (28) | |
| Total | $ | 2,374 $ | 2,093 $ | 9,131 $ | 4,184 |
Gross profit (loss) margins before depreciation
and amortization1
| Copper | 49 % | 65 % | 56 % | 63 % |
| Zinc | 33 % | 35 % | 33 % | 30 % |
| Steelmaking coal | 65 % | 62 % | 72 % | 50 % |
| Energy | 29 % | (2) % | 32 % | (6) % |
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 Nine months ended September 30, September 30,
| (CAD$ in millions) | 2022 | 2021 | 2022 | 2021 | |
| Copper price (realized – US$/pound) | $ | 3.49 $ | 4.28 $ | 4.10 $ | 4.20 |
| Production (000’s tonnes)1 | 66 | 71 | 205 | 215 | |
| Sales (000’s tonnes)1 | 67 | 76 | 212 | 209 | |
| Gross profit | $ | 250 $ | 504 $ | 1,151 $ | 1,299 |
| Gross profit before depreciation and amortization2 | $ | 358 $ | 610 $ | 1,473 $ | 1,590 |
| Property, plant and equipment expenditures | $ | 869 $ | 749 $ | 2,501 $ | 2,037 |
Performance
Gross profit from our copper business unit was $250 million in the third quarter compared with $504 million a year ago. Gross profit decreased from a year ago (see table below) primarily due to an 18% decline in realized copper prices, and partly due to reduced sales volumes as a result of timing of shipments, and higher unit operating costs2.
Copper production of 66,400 tonnes in the third quarter was 6% lower than a year ago, primarily due to reduced production from Carmen de Andacollo as a result of a significant precipitation event in July as described below. Production from Antamina was slightly higher in the third quarter compared with a year ago, partially offsetting reduced production at Highland Valley Copper.
The table below summarizes the change in gross profit in our copper business unit for the quarter:
Three months ended Gross Profit (CAD$ in millions) September 30,
As reported in the third quarter of 2021 $ 504 Increase (decrease):
Copper price realized (158) Sales volumes (57) Unit operating costs (46) Foreign exchange (CAD$/US$) 10 Depreciation (3)
Net decrease $ (254) As reported in current quarter $ 250
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.
10 Teck Resources Limited 2022 Third Quarter News Release Property, plant and equipment expenditures in the third quarter totaled $869 million, including $62 million for sustaining capital and $753 million for project development expenditures for QB2. Capitalized stripping costs were $78 million in the third quarter, $27 million higher than a year ago, as expected in the Antamina and Highland Valley Copper mine plans.
Markets
In the third quarter, average LME copper prices fell below US$4.00 per pound for the first time since the first quarter of 2021, but remained above historic averages, averaging US$3.51 per pound, 17% and 19% lower than the third quarter 2021 and second quarter 2022, respectively. Global demand for copper metal remained well supported in the third quarter. While global consumer demand appears weak, industrial demand coupled with corporate and government demand for renewable energy and decarbonization targets remain supportive for medium- to long-term copper demand. Supply of copper remains constrained with mine production disruptions continuing to rise due to COVID-19 impacts, supply chain issues and labour shortages.
Tightness in the copper concentrate market eased in the third quarter with spot treatment charges rising above 2022 annual contract terms through the quarter. Two new large copper smelters delayed their startups in the third quarter while port congestion in Chile and South Africa eased, putting additional tonnes of concentrate into the spot market. Total combined copper unit imports into China are up 3% year to date, an additional 120,000 tonnes over 2021 levels. Global stocks of copper cathode on exchanges around the world remain below historic levels at 2.8 days of global consumption compared to the long-term average of 11 days of global consumption. Stocks on exchanges and in bonded warehouses in China fell 275,000 tonnes in the quarter with the majority of the fall coming from Chinese bonded warehouses. Total visible stocks including bonded stocks are at the lowest levels since 2009 at 3.9 days of consumption compared to a long term average of 15 days.
Operations
Highland Valley Copper
Copper production of 30,400 tonnes in the third quarter was 1,300 tonnes lower than a year ago, due to lower copper grade, partly offset by improved mill recoveries and higher mill throughput. Third quarter molybdenum production of approximately 500,000 pounds more than doubled compared with a year ago, as the inventory of unleached material produced in the second quarter was processed through the molybdenum leach circuit.
Operating costs, before changes in inventory, were $181 million in the third quarter or $35 million higher than a year ago. The increase was primarily due to higher consumables costs, most notably diesel, as well as maintenance and repair parts costs and contractor expenses.
Antamina
Copper production (100% basis) of 113,900 tonnes in the third quarter was 4,000 tonnes higher than a year ago, primarily due to higher mill throughput. The mix of mill feed in the quarter was 53% copper-only ore and 47% copper-zinc ore, compared with 57% copper-only ore and 43% copper-zinc ore, respectively, a year ago. Zinc production (100% basis) of 115,200 tonnes was similar to a year ago.
Operating costs, before changes in inventory, were US$85 million (22.5% share) in the third quarter, or US$11 million higher than a year ago. The increase was primarily due to higher consumables costs, particularly diesel.
Carmen de Andacollo
Copper production of 7,900 tonnes in the third quarter was 3,600 tonnes lower than a year ago, primarily due to lower mill throughput as well as lower mill recoveries. Operations were impacted by a significant
11 Teck Resources Limited 2022 Third Quarter News Release precipitation event in July, resulting in approximately five days of shutdown, additional unplanned maintenance and a change to the concentrator ore feed strategy.
Operating costs, before changes in inventory, in the third quarter of US$62 million were US$11 million higher than a year ago primarily due to increased repair and maintenance parts costs and contractor expenses resulting from the precipitation event.
Quebrada Blanca
Copper cathode production of 2,600 tonnes in the third quarter was similar to a year ago.
Operating costs, before changes in inventory, in the third quarter were US$28 million, US$11 million higher than a year ago primarily due to the reintroduction of mining activities in the second quarter of 2022.
Cost of Sales
Cost of sales was $475 million in the third quarter compared with $436 million in the same period last year. Total cash unit costs1 of product sold in the third quarter, before cash margins for by-products1, of US$1.96 per pound were US$0.28 per pound higher than the same period a year ago. This was primarily due to higher consumables costs, particularly diesel, as well as higher maintenance and repair parts costs and contractor expenses. Cash margins for by-products1 were US$0.42 per pound compared with US$0.39 per pound in the same period a year ago due to higher zinc prices.
| Three months ended Nine months ended September 30, September 30, | |
| (amounts reported in US$ per pound) 2022 2021 2022 2021 |
| Adjusted cash cost of sales1 | $ | 1.78 $ | 1.53 $ | 1.80 $ | 1.58 |
| Smelter processing charges | 0.18 | 0.15 | 0.18 | 0.16 | |
| Total cash unit costs1 | $ | 1.96 $ | 1.68 $ | 1.98 $ | 1.74 |
| Cash margin for by-products1 | (0.42) | (0.39) | (0.48) | (0.39) | |
| Net cash unit costs1 | $ | 1.54 $ | 1.29 $ | 1.50 $ | 1.35 |
Outlook
2022 annual guidance for our copper business unit is unchanged from our previous disclosures and is outlined in our guidance tables on pages 31—36.
We have revised our Highland Valley Copper copper production guidance for 2023 to 2025 to 110,000 to 170,000 tonnes of copper per year from the previously disclosed range of 130,000 to 160,000 copper tonnes per year. Molybdenum production is now expected to be between 1.0 to 5.0 million pounds per year from the previously disclosed 3.0 to 5.0 million pounds per year. Production is expected to be at the lower end of the range in 2023, increasing in the following two years. These revisions are due to delayed pre-stripping in the Lornex pit as a result of maintenance-related issues and high absenteeism.
Quebrada Blanca concentrate production is expected to ramp up over 2023 following commissioning of the Quebrada Blanca Phase 2 project. We now expect copper production to be between 170,000 and 300,000 tonnes per year for 2023 to 2025, from the previously disclosed range of 245,000 to 300,000 tonnes per year, with 2023 at the lower end of the guidance range.
12 Teck Resources Limited 2022 Third Quarter News Release